THE PERSPECTIVE ADVANTAGE
FIXED AND VARIABLE ANNUITY
ISSUED BY JACKSON NATIONAL LIFE INSURANCE COMPANY AND JACKSON NATIONAL SEPARATE
ACCOUNT V
o Individual, flexible premium deferred annuity
o 2 guaranteed accounts which offer an interest rate that is guaranteed by
Jackson National Life Insurance Company (Jackson National)
o Investment divisions which purchase shares of the following series of
mutual funds:
JNL SERIES TRUST
JNL/Alliance Growth Series
JNL/J.P. Morgan Enhanced S&P 500(R) Stock Index Series
JNL/J.P. Morgan International & Emerging Markets Series
JNL/Janus Aggressive Growth Series
JNL/Janus Global Equities Series
JNL/Janus Growth & Income Series
JNL/PIMCO Total Return Bond Series
JNL/Putnam International Equity Series
JNL/Putnam Midcap Growth Series
JNL/S&P Conservative Growth Series
JNL/S&P Moderate Growth Series
JNL/S&P Aggressive Growth Series
Lazard/JNL Mid Cap Value Series
Lazard/JNL Small Cap Value Series
PPM America/JNL Money Market Series
Salomon Brothers/JNL Balanced Series
Salomon Brothers/JNL Global Bond Series
Salomon Brothers/JNL High Yield Bond Series
T. Rowe Price/JNL Mid-Cap Growth Series
JNL VARIABLE FUND V LLC
JNL/First Trust The Dow(SM) Target 10 Series
Please read this prospectus before you purchase a Perspective Advantage Fixed
and Variable Annuity. It contains important information about the contract that
you ought to know before investing. You should keep this prospectus on file for
future reference.
To learn more about the Perspective Advantage Fixed and Variable Annuity
contract, you can obtain a free copy of the Statement of Additional Information
(SAI) dated May 1, 2000, by calling Jackson National at (800) 766-4683 or by
writing Jackson National at: Annuity Service Center, P.O. Box 378002, Denver,
Colorado 80237-8002. The SAI has been filed with the Securities and Exchange
Commission (SEC) and is legally a part of this prospectus. The Table of Contents
of the SAI appears at the end of this prospectus. The SEC maintains a website
(http://www.sec.gov) that contains the SAI, material incorporated by reference
and other information regarding registrants that file electronically with the
SEC.
THE SEC HAS NOT APPROVED OR DISAPPROVED THE PERSPECTIVE ADVANTAGE FIXED AND
VARIABLE ANNUITY OR PASSED UPON THE ADEQUACY OF THIS PROSPECTUS. IT IS A
CRIMINAL OFFENSE TO REPRESENT OTHERWISE.
NOT FDIC INSURED
MAY LOSE VALUE
NO BANK GUARANTEE
MAY 1, 2000
<PAGE>
"Dow Jones", "Dow Jones Industrial Average(SM)", "DJIA(SM)" and "The Dow 10(SM)"
are service marks of Dow Jones & Company, Inc. (Dow Jones). Dow Jones has no
relationship to the annuity, other than the licensing of the Dow Jones
Industrial Average (DJIA) and its service marks for use in connection with the
JNL/First Trust The Dow Target 10 Series.
DOW JONES DOES NOT:
o Sponsor, endorse, sell or promote the JNL/First Trust The Dow Target 10
Series.
o Recommend that any person invest in the JNL/First Trust The Dow Target 10
Series or any other securities.
o Have any responsibility or liability for or make any decisions about the
timing, amount or pricing of the JNL/First Trust The Dow Target 10 Series.
o Have any responsibility or liability for the administration, management or
marketing of the JNL/First Trust The Dow Target 10 Series.
o Consider the needs of the JNL/First Trust The Dow Target 10 Series or the
owners of the JNL/First Trust The Dow Target 10 Series in determining,
composing or calculating the DJIA or have any obligation to do so.
- --------------------------------------------------------------------------------
DOW JONES WILL NOT HAVE ANY LIABILITY IN CONNECTION WITH THE JNL/FIRST TRUST THE
DOW TARGET 10 SERIES.
SPECIFICALLY,
o DOW JONES DOES NOT MAKE ANY WARRANTY, EXPRESS OR IMPLIED, AND DOW JONES
DISCLAIMS ANY WARRANTY ABOUT:
o THE RESULTS TO BE OBTAINED BY THE JNL/FIRST TRUST THE DOW TARGET 10
SERIES, THE OWNERS OF THE JNL/FIRST TRUST THE DOW TARGET 10 SERIES OR
ANY OTHER PERSON IN CONNECTION WITH THE USE OF THE DJIA AND THE DATA
INCLUDED IN THE DJIA;
o THE ACCURACY OR COMPLETENESS OF THE DJIA AND ITS DATA;
o THE MERCHANTABILITY AND THE FITNESS FOR A PARTICULAR PURPOSE OR USE OF
THE DJIA AND ITS DATA;
o DOW JONES WILL HAVE NO LIABILITY FOR ANY ERRORS, OMISSIONS OR INTERRUPTIONS
IN THE DJIA OR ITS DATA;
o UNDER NO CIRCUMSTANCES WILL DOW JONES BE LIABLE FOR ANY LOST PROFITS OR
INDIRECT, PUNITIVE, SPECIAL OR CONSEQUENTIAL DAMAGES OR LOSSES, EVEN IF DOW
JONES KNOWS THAT THEY MIGHT OCCUR.
THE LICENSING AGREEMENT BETWEEN FIRST TRUST ADVISORS L.P. (SUB-ADVISER TO THE
JNL VARIABLE FUND FUND V LLC) AND DOW JONES IS SOLELY FOR THEIR BENEFIT AND NOT
FOR THE BENEFIT OF THE OWNERS OF THE JNL/FIRST TRUST THE DOW TARGET 10 SERIES OR
ANY OTHER THIRD PARTIES.
- --------------------------------------------------------------------------------
"Standard & Poor's(R)", "S&P(R)", "S&P 500(R)", "Standard & Poor's 500", and
"500" are trademarks of The McGraw-Hill Companies, Inc. and have been licensed
for use by Jackson National Life Insurance Company. The JNL/J.P. Morgan Enhanced
S&P 500(R) Stock Index Series is not sponsored, endorsed, sold or promoted by
Standard & Poor's and Standard & Poor's makes no representation regarding the
advisability of investing in the Series. Please see the Statement of Additional
Information which sets forth certain additional disclaimers and limitations of
liabilities on behalf of S&P.
"JNL(R)", "Jackson National(R)" and "Jackson National Life(R)" are trademarks of
Jackson National Life Insurance Company.
<PAGE>
TABLE OF CONTENTS
Key Facts
Fee Table
The Annuity Contract
The Company
The Guaranteed Accounts
The Separate Account
Investment Divisions
Contract Charges
Purchases
Transfers
Access to Your Money
Income Payments (The Income Phase)
Death Benefit
Taxes
Other Information
Table of Contents of the Statement of Additional Information
<PAGE>
1
KEY FACTS
ANNUITY SERVICE CENTER: 1 (800) 766-4683
Mail Address: P.O. Box 378002, Denver, Colorado 80237-8002
Delivery Address: 8055 East Tufts Avenue, Second Floor,
Denver, Colorado 80237
INSTITUTIONAL MARKETING
GROUP SERVICE CENTER: 1 (800) 777-7779
Mail Address: P.O. Box 30386, Lansing, Michigan 48909-9692
Delivery Address: 5901 Executive Drive, Lansing, Michigan
48911 Attn: IMG
HOME OFFICE: 5901 Executive Drive, Lansing, Michigan
48911
THE ANNUITY CONTRACT The fixed and variable annuity contract
offered by Jackson National provides a means
for investing on a tax-deferred basis in the
guaranteed accounts of Jackson National and
the investment divisions. The contract is
intended for retirement savings or other
long-term investment purposes and provides
for a death benefit and income options.
INVESTMENT OPTIONS You can put money into any of the guaranteed
accounts and/or the investment divisions but
you may not put your money in more than
eighteen of the investment options plus the
guaranteed accounts during the life of your
contract.
EXPENSES The contract has insurance features and
investment features, and there are costs
related to each.
Jackson National makes a deduction for its
insurance charges which is equal to 1.50% of
the daily value of the contracts invested in
the investment divisions. During the
accumulation phase, Jackson National deducts
a $35 annual contract maintenance charge
from your contract. If you choose the
optional enhanced death benefit, Jackson
National will deduct a charge equal to .15%
of the daily value of your contract invested
in the investment divisions.
If you take your money out of the contract,
Jackson National may assess a withdrawal
charge. The withdrawal charge starts at 8.5%
in the first year, declines to 8% in the
second year, and declines 1% a year
thereafter to 0% after 9 years.
Jackson National may assess a state premium
tax charge which ranges from 0-4%, depending
upon the state, when you begin receiving
regular income payments from your contract,
when you make a withdrawal or, in states
where required, at the time premium payments
are made.
There are also investment charges which
range from .20% to 1.18%, on an annual
basis, of the average daily value of the
series, depending on the series.
PURCHASES Under most circumstances, you can buy a
contract for $5,000 or more ($2,000 or more
for a qualified plan contract). You can add
$500 ($50 under the automatic payment plan)
or more at any time during the accumulation
phase.
CONTRACT ENHANCEMENTS Each time you make a premium payment,
Jackson National will add an additional
amount to your contract equal to 4% of your
premium payment. Jackson National will not
add contract enhancements to premium
payments made within 12 months prior to a
withdrawal, distribution or payment of a
death benefit.
ACCESS TO YOUR MONEY You can take money out of your contract
during the accumulation phase. Withdrawals
may be subject to a withdrawal charge. You
may also have to pay income tax and a tax
penalty on any money you take out.
INCOME PAYMENTS You may choose to receive regular income
from your annuity. During the income phase,
you have the same investment choices you had
during the accumulation phase.
DEATH BENEFIT If you die before moving to the income
phase, the person you have chosen as your
beneficiary will receive a death benefit.
When you purchase your contract, you must
elect the standard death benefit or the
optional enhanced death benefit. You cannot
change your election after we have issued
your contract.
FREE LOOK If you cancel your contract within twenty
days after receiving it (or whatever period
is required in your state), Jackson National
will return the amount your contract is
worth on the day we receive your request,
less any contract enhancements applied to
your contract. This may be more or less than
your original payment. If required by law,
Jackson National will return your premium.
TAXES The Internal Revenue Code provides that you
will not be taxed on the earnings on the
money held in your contract until you take
money out (this is referred to as
tax-deferral). There are different rules as
to how you will be taxed depending on how
you take the money out and whether your
contract is non-qualified or purchased as
part of a qualified plan.
<PAGE>
FEE TABLE
OWNER TRANSACTION EXPENSES*
Withdrawal Charge (as a percentage of premium payments):
Years Since Premium Payment 0 1 2 3 4 5 6 7 8 9+
Charge 8.5% 8% 7% 6% 5% 4% 3% 2% 1% 0%
Transfer Fee:
$25 for each transfer in excess of 15 in a contract year
Contract Maintenance Charge:
$35 per contract per year
SEPARATE ACCOUNT ANNUAL EXPENSES (as a percentage of average account value)
Optional
Standard Enhanced
Death Benef Death Benefit
Mortality and Expense Risk Charges 1.35% 1.50%
Administration Charge .15% .15%
--------- --------
Total Separate Account Annual Expenses 1.50% 1.65%
SERIES ANNUAL EXPENSES
(as a percentage of the series average net assets)
<TABLE>
<CAPTION>
Management
and Total Series
Administrative Other Annual
Fee Expenses Expenses
- ----------------------------------------------------------------- --------------- ------------- --------------
<S> <C> <C> <C>
JNL/Alliance Growth Series ..................................... .88% 0% .88%
JNL/J.P. Morgan Enhanced S&P 500(R)Stock Index Series .......... .90% 0% .90%
JNL/J.P. Morgan International & Emerging Markets Series ........ 1.08% 0% 1.08%
JNL/Janus Aggressive Growth Series ............................. 1.05% 0% 1.05%
JNL/Janus Global Equities Series ............................... 1.09% 0% 1.09%
JNL/Janus Growth & Income Series ............................... 1.03% 0% 1.03%
JNL/PIMCO Total Return Bond Series ............................. .80% 0% .80%
JNL/Putnam International Equity Series ......................... 1.18% 0% 1.18%
JNL/Putnam Midcap Growth Series ................................ 1.05% 0% 1.05%
JNL/S&P Conservative Growth Series ............................. .20% 0% .20%
JNL/S&P Moderate Growth Series ................................. .20% 0% .20%
JNL/S&P Aggressive Growth Series ............................... .20% 0% .20%
Lazard/JNL Mid Cap Value Series ................................ 1.08% 0% 1.08%
Lazard/JNL Small Cap Value Series .............................. 1.15% 0% 1.15%
PPM America/JNL Money Market Series ............................ .70% 0% .70%
Salomon Brothers/JNL Balanced Series ........................... .90% 0% .90%
Salomon Brothers/JNL Global Bond Series ........................ .95% 0% .95%
Salomon Brothers/JNL High Yield Bond Series .................... .90% 0% .90%
T. Rowe Price/JNL Mid-Cap Growth Series ........................ 1.05% 0% 1.05%
JNL/First Trust The Dow(SM) Target 10 Series ................... .85% 0% .85%
- ------------------------------------------------------------------------------------------------------------
</TABLE>
Certain Series pay Jackson National Financial Services, LLC, the adviser, an
Administrative Fee of .10% for certain services provided to the JNL Series Trust
and JNL Variable Fund LLC by Jackson National Financial Services, LLC. The
JNL/S&P Series do not pay an Administrative Fee. The Total Series Annual
Expenses reflect the inclusion of the Administrative Fee.
- ----------
* See "Contract Charges"
* Underlying Series Expenses. The expenses shown above are the annual operating
expenses for the JNL/S&P Series. Because the JNL/S&P Series invest in other
Series of the JNL Series Trust, the JNL/S&P Series will indirectly bear their
pro rata share of fees and expenses of the underlying Series in addition to the
expenses shown.
The total annual operating expenses for each JNL/S&P Series (including both the
annual operating expenses for the JNL/S&P Series and the annual operating
expenses for the underlying investment divisions) could range from .90% to
1.38%. The table below shows estimated total annual operating expenses for each
of the JNL/S&P Series based on the pro rata share of expenses that the JNL/S&P
Series would bear if they invested in a hypothetical mix of underlying
investment divisions. The adviser believes the expenses shown below to be a
likely approximation of the expenses the JNL/S&P Series will incur based on the
actual mix of underlying investment divisions. The expenses shown below include
both the annual operating expenses for the JNL/S&P Series and the annual
operating expenses for the underlying investment divisions. The actual expenses
of each JNL/S&P Series will be based on the actual mix of underlying investment
divisions in which it invests. The actual expenses may be greater or less than
those shown.
JNL/S&P Conservative Growth Series ........................... 1.036%
JNL/S&P Moderate Growth Series ............................... 0.997%
JNL/S&P Aggressive Growth Series ............................. 1.172%
EXAMPLES. You would pay the following expenses on a $1,000 investment, assuming
a 5% annual return on assets:
(a) if you surrender your contract at the end of each time period;
(b) if you do not surrender your contract or if you begin receiving
income payments from your contract after the first year.
Standard Death Benefit
<TABLE>
<CAPTION>
Time Periods
- -------------------------------------------------------------------------------- ------- --------- -------- --------
1 3 5 10
year years years years
- -------------------------------------------------------------------------------- ------- --------- -------- --------
<S> <C> <C> <C> <C>
JNL/Alliance Growth Division (a) $ 24 $ 75 $ 128 $ 273
(b) 109 145 178 273
JNL/J.P. Morgan Enhanced S&P 500(R)Stock Index Division (a) 25 75 129 276
(b) 110 145 179 276
JNL/J.P. Morgan International & Emerging Markets Division (a) 26 81 138 293
(b) 111 151 188 293
JNL/Janus Aggressive Growth Division (a) 26 80 137 290
(b) 111 150 187 290
JNL/Janus Global Equities Division (a) 26 81 139 294
(b) 111 151 189 294
JNL/Janus Growth & Income Division (a) 26 79 135 288
(b) 111 149 185 288
JNL/PIMCO Total Return Bond Division (a) 24 72 124 266
(b) 109 142 174 266
JNL/Putnam International Equity Division (a) 27 84 143 303
(b) 112 154 193 303
JNL/Putnam Midcap Growth Division (a) 26 80 137 290
(b) 111 150 187 290
JNL/S&P Conservative Growth Division (a) 17 54 93 203
(b) 102 124 143 203
JNL/S&P Moderate Growth Division (a) 17 54 93 203
(b) 102 124 143 203
JNL/S&P Aggressive Growth Division (a) 17 54 93 203
(b) 102 124 143 203
Lazard/JNL Mid Cap Value Division (a) 26 81 138 293
(b) 111 151 188 293
Lazard/JNL Small Cap Value Division (a) 27 83 141 300
(b) 112 153 191 300
PPM America/JNL Money Market Division (a) 23 69 119 255
(b) 108 139 169 255
Salomon Brothers/JNL Balanced Division (a) 25 75 129 276
(b) 110 145 179 276
Salomon Brothers/JNL Global Bond Division (a) 25 77 132 281
(b) 110 147 182 281
Salomon Brothers/JNL High Yield Bond Division (a) 25 75 129 276
(b) 110 145 179 276
T. Rowe Price/JNL Mid-Cap Growth Division (a) 26 80 137 290
(b) 111 150 187 290
JNL/First Trust The Dow(SM) Target 10 Division (a) 24 74 127 271
(b) 109 144 177 271
- -------------------------------------------------------------------------------- ------- --------- -------- --------
</TABLE>
<TABLE>
<CAPTION>
Enhanced Death Benefit
Time Periods
- -------------------------------------------------------------------------------- ------- --------- -------- --------
1 3 5 10
year years years years
- -------------------------------------------------------------------------------- ------- --------- -------- --------
<S> <C> <C> <C> <C>
JNL/Alliance Growth Division (a) $ 26 $ 79 $ 135 $ 288
(b) 111 149 185 288
JNL/J.P. Morgan Enhanced S&P 500(R)Stock Index Division (a) 26 80 137 290
(b) 111 150 187 290
JNL/J.P. Morgan International & Emerging Markets Division (a) 28 85 145 308
(b) 113 155 195 308
JNL/Janus Aggressive Growth Division (a) 28 84 144 305
(b) 113 154 194 305
JNL/Janus Global Equities Division (a) 28 86 146 309
(b) 113 156 196 309
JNL/Janus Growth & Income Division (a) 27 84 143 303
(b) 112 154 193 303
JNL/PIMCO Total Return Bond Division (a) 25 77 132 281
(b) 110 147 182 281
JNL/Putnam International Equity Division (a) 29 88 150 318
(b) 114 158 200 318
JNL/Putnam Midcap Growth Division (a) 28 84 144 305
(b) 113 154 194 305
JNL/S&P Conservative Growth Division (a) 19 59 101 219
(b) 104 129 151 219
JNL/S&P Moderate Growth Division (a) 19 59 101 219
(b) 104 129 151 219
JNL/S&P Aggressive Growth Division (a) 19 59 101 219
(b) 104 129 151 219
Lazard/JNL Mid Cap Value Division (a) 28 85 145 308
(b) 113 155 195 308
Lazard/JNL Small Cap Value Division (a) 29 87 149 315
(b) 114 157 199 315
PPM America/JNL Money Market Division (a) 24 74 127 271
(b) 109 144 177 271
Salomon Brothers/JNL Balanced Division (a) 26 80 137 290
(b) 111 150 187 290
Salomon Brothers/JNL Global Bond Division (a) 27 81 139 295
(b) 112 151 189 295
Salomon Brothers/JNL High Yield Bond Division (a) 26 80 137 290
(b) 111 150 187 290
T. Rowe Price/JNL Mid-Cap Growth Division (a) 28 84 144 305
(b) 113 154 194 305
JNL/First Trust The Dow(SM) Target 10 Division (a) 26 78 134 286
(b) 111 148 184 286
- -------------------------------------------------------------------------------- ------- --------- -------- --------
</TABLE>
EXPLANATION OF FEE TABLE AND EXAMPLES. The purpose of the Fee Table and Examples
is to assist you in understanding the various costs and expenses that you will
bear directly or indirectly. The Fee Table reflects the expenses of the separate
account and the series. Premium taxes may also apply.
The Examples reflect the contract maintenance charge which is determined by
dividing the total amount of such charges expected to be collected during the
year by the total estimated average net assets of the investment divisions.
A withdrawal charge is imposed on income payments which occur within one year of
the date the contract is issued.
THE EXAMPLES DO NOT REPRESENT PAST OR FUTURE EXPENSES. THE ACTUAL EXPENSES THAT
YOU INCUR MAY BE GREATER OR LESS THAN THOSE SHOWN.
FINANCIAL STATEMENTS. You can find the following financial statements in the
SAI:
o the financial statements of Jackson National for the year ended December
31, 1999
There are no financial statements of the Separate Account because the Separate
Account had not commenced operations as of December 31, 1999.
The financial statements of Jackson National for the year ended December 31,
1999 have been audited by KPMG LLP, independent accountants.
THE ANNUITY CONTRACT
The fixed and variable annuity contract offered by Jackson National is a
contract between you, the owner, and Jackson National, an insurance company. The
contract provides a means for investing on a tax-deferred basis in guaranteed
accounts and investment divisions. The contract is intended for retirement
savings or other long-term investment purposes and provides for a death benefit
and guaranteed income options.
The contract, like all deferred annuity contracts, has two phases: (1) the
accumulation phase, and (2) the income phase. During the accumulation phase,
earnings accumulate on a tax-deferred basis and are taxed as income when you
make a withdrawal. Under qualified plans earnings also accumulate on a
tax-deferred basis.
The contract offers guaranteed accounts. The guaranteed accounts offer an
interest rate that is guaranteed by Jackson National for the duration of the
guaranteed account period. While your money is in a guaranteed account, the
interest your money earns and your principal are guaranteed by Jackson National.
The value of a guaranteed account may be reduced if you make a withdrawal prior
to the end of the guaranteed account period, but will never be less than the
premium payments accumulated at 3% per year. If you choose to have your annuity
payments come from the guaranteed accounts, your payments will remain level
throughout the entire income phase.
The contract also offers investment divisions. The investment divisions are
designed to offer a higher return than the guaranteed accounts. HOWEVER, THIS IS
NOT GUARANTEED. IT IS POSSIBLE FOR YOU TO LOSE YOUR MONEY. If you put money in
the investment divisions, the amount of money you are able to accumulate in your
contract during the accumulation phase depends upon the performance of the
investment divisions you select. The amount of the income payments you receive
during the income phase also will depend, in part, on the performance of the
investment divisions you choose for the income phase.
As the owner, you can exercise all the rights under the contract. You can assign
the contract at any time before the income date, but Jackson National will not
be bound until it receives written notice of the assignment. An assignment may
be a taxable event.
THE COMPANY
Jackson National is a stock life insurance company organized under the laws of
the state of Michigan in June 1961. Its legal domicile and principal business
address is 5901 Executive Drive, Lansing, Michigan 48911. Jackson National is
admitted to conduct life insurance and annuity business in the District of
Columbia and all states except New York. Jackson National is ultimately a
wholly-owned subsidiary of Prudential plc (London, England).
Jackson National has responsibility for administration of the contracts and the
Separate Account. We maintain records of the name, address, taxpayer
identification number and other pertinent information for each contract owner
and the number and type of contracts issued to each contract owner, and records
with respect to the value of each contract.
THE GUARANTEED ACCOUNTS
If you select a guaranteed account, your money will be placed with Jackson
National's other assets. The guaranteed accounts are not registered with the SEC
and the SEC does not review the information we provide to you about the
guaranteed accounts. Your contract contains a more complete description of the
guaranteed accounts.
THE SEPARATE ACCOUNT
The Jackson National Separate Account V was established by Jackson National on
September 25, 1998, pursuant to the provisions of Michigan law, as a segregated
asset account of the company. The separate account meets the definition of a
"separate account" under the federal securities laws and is registered with the
SEC as a unit investment trust under the Investment Company Act of 1940, as
amended.
The assets of the separate account legally belong to Jackson National and the
obligations under the contracts are obligations of Jackson National. However,
the contract assets in the separate account are not chargeable with liabilities
arising out of any other business Jackson National may conduct. All of the
income, gains and losses resulting from these assets are credited to or charged
against the contracts and not against any other contracts Jackson National may
issue.
The separate account is divided into investment divisions. Jackson National does
not guarantee the investment performance of the separate account or the
investment divisions.
INVESTMENT DIVISIONS
You can put money in any or all of the investment divisions; however, you may
not allocate your money to more than eighteen investment options plus the
guaranteed accounts during the life of your contract. The investment divisions
purchase shares of the following series of mutual funds:
JNL Series Trust
JNL/Alliance Growth Series
JNL/J.P. Morgan Enhanced S&P 500(R) Stock Index Series
JNL/J.P. Morgan International & Emerging Markets Series
JNL/Janus Aggressive Growth Series
JNL/Janus Global Equities Series
JNL/Janus Growth & Income Series
JNL/PIMCO Total Return Bond Series
JNL/Putnam International Equity Series
JNL/Putnam Midcap Growth Series
JNL/S&P Conservative Growth Series
JNL/S&P Moderate Growth Series
JNL/S&P Aggressive Growth Series
Lazard/JNL Mid Cap Value Series
Lazard/JNL Small Cap Value Series
PPM America/JNL Money Market Series
Salomon Brothers/JNL Balanced Series
Salomon Brothers/JNL Global Bond Series
Salomon Brothers/JNL High Yield Bond Series
T. Rowe Price/JNL Mid-Cap Growth Series
JNL Variable Fund V LLC
JNL/First Trust The Dow(SM) Target 10 Series - seeks a high total
return through a combination of capital appreciation and dividend income by
investing approximately equal amounts in the common stock of the ten
companies included in the Dow Jones Industrial Average(SM) which have the
highest dividend yields on a pre-determined selection date.
The series are described in the attached prospectuses for the JNL Series Trust
and the JNL Variable Fund V LLC. Jackson National Financial Services, LLC serves
as investment adviser for all of the series. The sub-adviser for each series is
listed in the following table:
Sub-Adviser Series
Alliance Capital Management L.P. JNL/Alliance Growth Series
J.P. Morgan Investment Management Inc. JNL/J.P. Morgan Enhanced S&P 500(R)
Stock Index Series
JNL/J.P. Morgan International &
Emerging Markets Series
Janus Capital Corporation JNL/Janus Aggressive Growth Series
JNL/Janus Global Equities Series
JNL/Janus Growth & Income Series
Pacific Investment Management Company JNL/PIMCO Total Return Bond Series
Standard & Poor's Investment Advisory JNL/S&P Conservative Growth Series
Services, Inc. JNL/S&P Moderate Growth Series
JNL/S&P Aggressive Growth Series
Lazard Asset Management Lazard/JNL Mid Cap Value Series
Lazard/JNL Small Cap Value Series
PPM America, Inc. PPM America/JNL Money Market Series
Putnam Investment Management, Inc. JNL/Putnam International Equity Series
JNL/Putnam Midcap Growth Series
Salomon Brothers Asset Management Inc Salomon Brothers/JNL Balanced Series
Salomon Brothers/JNL Global Bond
Series
Salomon Brothers/JNL High Yield Bond
Series
T. Rowe Price Associates, Inc. T. Rowe Price/JNL Mid-Cap Growth
Series
First Trust Advisors L.P. JNL/First Trust The Dow(SM) Target 10
Series
The investment objectives and policies of certain of the investment divisions
are similar to the investment objectives and policies of other mutual funds that
certain of the investment sub-advisers manage. Although the objectives and
policies may be similar, the investment results of the investment division may
be higher or lower than the result of such other mutual funds. We cannot
guarantee, and make no representation, that the investment results of similar
funds will be comparable even though the funds have the same investment
advisers.
An investment division's performance may be affected by risks specific to
certain types of investments, such as foreign securities, derivative
investments, non-investment grade debt securities, initial public offerings
(IPOs) or companies with relatively small market capitalizations. IPOs and other
investment techniques may have a magnified performance impact on an investment
division with a small asset base. An investment division may not experience
similar performance as its assets grow.
Depending on market conditions, you can make or lose money in any of the
investment divisions. You should read the prospectuses for the JNL Series Trust
and the JNL Variable Fund V LLC carefully before investing. Additional
investment divisions may be available in the future.
VOTING RIGHTS. To the extent required by law, Jackson National will obtain from
you and other owners of the contracts instructions as to how to vote when the
series solicits proxies in conjunction with a vote of shareholders. When Jackson
National receives instructions, we will vote all the shares Jackson National
owns in proportion to those instructions.
SUBSTITUTION. Jackson National may be required to substitute an investment
division with another division. We will not do this without any required
approval of the SEC. Jackson National will give you notice of such transactions.
CONTRACT CHARGES
There are charges and other expenses associated with the contracts that reduce
the return on your investment in the contract. These charges may be a lesser
amount where required by state law or as described below, but will not be
increased. These charges and expenses are:
INSURANCE CHARGES. Each day Jackson National makes a deduction for its insurance
charges. We do this as part of our calculation of the value of the accumulation
units and annuity units. On an annual basis, this charge equals 1.50% of the
daily value of the contracts invested in an investment division, after expenses
have been deducted.
This charge is for the mortality risks, expense risks and administrative
expenses assumed by Jackson National. The mortality risks that Jackson National
assumes arise from our obligations under the contracts:
o to make income payments for the life of the annuitant during the income phase;
o to waive the withdrawal charge in the event of your death; and o to provide
both a standard and an enhanced death benefit prior to the income date.
The expense risk that Jackson National assumes is the risk that our actual cost
of administering the contracts and the investment divisions will exceed the
amount that we receive from the administration charge and the contract
maintenance charge.
OPTIONAL ENHANCED DEATH BENEFIT CHARGE. If you elect the optional enhanced death
benefit when you purchase your contract, Jackson National will deduct an
optional enhanced death benefit charge from your contract. This charge, on an
annual basis, equals .15% of the daily value of your contract invested in the
investment divisions. This charge is for the mortality risks that we assume in
connection with the optional enhanced death benefit.
CONTRACT MAINTENANCE CHARGE. During the accumulation phase, Jackson National
deducts a $35 ($30 in Washington) annual contract maintenance charge on each
anniversary of the date on which your contract was issued. If you make a
complete withdrawal from your contract, the contract maintenance charge will
also be deducted. This charge is for administrative expenses.
Jackson National will not deduct this charge, if when the deduction is to be
made, the value of your contract is $50,000 or more. Jackson National may
discontinue this practice at any time.
TRANSFER FEE. A transfer fee of $25 will apply to each transfer in excess of 15
in a contract year. Jackson National may waive the transfer fee in connection
with pre-authorized automatic transfer programs, or may charge a lesser fee
where required by state law.
WITHDRAWAL CHARGE. During the accumulation phase, you can make withdrawals from
your contract.
You will incur a withdrawal charge when you withdraw:
o premiums which have been in your contract for nine years or less.
You will not incur a withdrawal charge when you withdraw:
o earnings;
o 10% of the value of your contract less any previous withdrawals during that
contract year (Note: This withdrawal option is available only once each
contract year).
The withdrawal charge starts at 8.5% in the first year that a premium is in your
contract, declines to 8% in the second year, and declines 1% a year thereafter
to 0% after 9 years. The withdrawal charge compensates us for costs associated
with selling the contracts.
For purposes of the withdrawal charge, Jackson National treats withdrawals as
coming from earnings first, then from the oldest remaining premium. If you make
a full withdrawal, the withdrawal charge is based on premiums remaining in the
contract. If you withdraw only part of the value of your contract, we deduct the
withdrawal charge from the remaining value in your contract.
Note: For tax purposes, withdrawals are considered to have come from the last
money into the contract. Thus, for tax purposes, earnings are considered to come
out first.
Jackson National does not assess the withdrawal charge on any payments paid out
as (1) income payments after the first year, (2) death benefits, or (3)
withdrawals necessary to satisfy the minimum distribution requirements of the
Internal Revenue Code. Withdrawals for terminal illness or other specified
conditions as defined by Jackson National may not be subject to a withdrawal
charge. These provisions are not available in all states.
Jackson National may waive the withdrawal charge on amounts you transfer from
your contract to another contract issued by us to you. The amounts that you
transfer may be subject to new withdrawal charges or other fees under the other
contract.
Jackson National may reduce or eliminate the amount of the withdrawal charge
when the contract is sold under circumstances which reduce its sales expense.
Some examples are: the purchase of a contract by a large group of individuals or
an existing relationship between Jackson National and a prospective purchaser.
Jackson National may not deduct a withdrawal charge under a contract issued to
an officer, director, agent or employee of Jackson National or any of its
affiliates.
OTHER EXPENSES. Jackson National pays the operating expenses of the Separate
Account.
There are deductions from and expenses paid out of the assets of the series.
These expenses are described in the attached prospectuses for the JNL Series
Trust and the JNL Variable Fund V LLC.
PREMIUM TAXES. Some states and other governmental entities charge premium taxes
or other similar taxes. Jackson National is responsible for the payment of these
taxes and may make a deduction from the value of the contract for them. Premium
taxes generally range from 0% to 4% depending on the state.
INCOME TAXES. Jackson National will make a deduction from the contract for any
income taxes which it incurs because of the contract. Currently, we are not
making any such deduction.
DISTRIBUTION OF CONTRACTS. Jackson National Life Distributors, Inc., located at
401 Wilshire Boulevard, Suite 1200, Santa Monica, California 90401, serves as
the distributor of the contracts. Jackson National Life Distributors, Inc. is a
wholly-owned subsidiary of Jackson National.
Commissions will be paid to broker-dealers who sell the contracts. While
commissions may vary, they are not expected to exceed 8% of any premium payment.
Under certain circumstances, Jackson National may pay bonuses, overrides, and
marketing allowances, in addition to the standard commissions. Jackson National
may under certain circumstances where permitted by applicable law, pay a bonus
to a contract purchaser to the extent the broker-dealer waives its commission.
Jackson National may use any of its corporate assets to cover the cost of
distribution, including any profit from the contract insurance charges.
PURCHASES
MINIMUM INITIAL PREMIUM:
o $5,000 under most circumstances
o $2,000 for a qualified plan contract
o The maximum we accept without our prior approval is $1 million.
MINIMUM ADDITIONAL PREMIUMS:
o $500
o $50 under the automatic payment plan
o You can pay additional premiums at any time during the accumulation phase.
When you purchase a contract, Jackson National will allocate your premium to one
or more of the guaranteed accounts and/or the investment divisions you have
selected. Your allocations must be in whole percentages ranging from 0% to 100%.
The minimum that you may allocate to a guaranteed account or investment division
is $100. Jackson National will allocate additional premiums in the same way
unless you tell us otherwise.
There may be more than eighteen investment options available under the contract;
however, you may not allocate your money to more than eighteen investment
options plus the guaranteed accounts during the life of your contract.
Jackson National will issue your contract and allocate your first premium within
2 business days after we receive your first premium and all information that we
require for the purchase of a contract. If we do not receive all of the
information that we require, we will contact you to get the necessary
information. If for some reason Jackson National is unable to complete this
process within 5 business days, we will either return your money or get your
permission to keep it until we receive all of the required information.
The Jackson National business day closes when the New York Stock Exchange
closes, usually 4:00 p.m. Eastern time.
ACCUMULATION UNITS. The contract value allocated to the investment divisions
will go up or down depending on the performance of the divisions. In order to
keep track of the value of your contract, Jackson National uses a unit of
measure called an accumulation unit. (An accumulation unit is similar to a share
of a mutual fund.) During the income phase it is called an annuity unit.
Every business day Jackson National determines the value of an accumulation unit
for each of the investment divisions. This is done by:
1. determining the total amount of money invested in the particular
investment division;
2. subtracting any insurance charges, optional enhanced death benefit
charge, and any other charges such as taxes;
3. dividing this amount by the number of outstanding accumulation units.
The value of an accumulation unit may go up or down from day to day.
When you make an allocation to an investment division, Jackson National credits
your contract with accumulation units. The number of accumulation units credited
is determined at the close of Jackson National's business day by dividing the
amount of the premium and/or contract enhancement allocated to any investment
division by the value of the accumulation unit for that investment division.
CONTRACT ENHANCEMENTS
Each time you make a premium payment, Jackson National will add an additional
amount to your contract. This contract enhancement will equal 4% of your premium
payment. Jackson National will allocate the contract enhancement to the
guaranteed accounts and/or investment divisions in the same proportion as the
premium payment.
You will not receive any contract enhancement applied to your contract within
the prior twelve months when:
o you return your contract within the free look period;
o Jackson National pays a death benefit under your contract;
o you make a partial or full withdrawal or receive a distribution; or
o Jackson National pays a benefit under a rider or an endorsement.
Your contract value will reflect any gains or losses attributable to a contract
enhancement described above.
Contract enhancements, and any gains or losses attributable to a contract
enhancement, distributed under your contract will be considered earnings under
the contract for tax purposes.
TRANSFERS
You can transfer money among the guaranteed accounts and the investment
divisions during the accumulation phase. During the income phase, you can
transfer money among the investment divisions or from the investment divisions
to a guaranteed option. You can make 15 transfers every contract year without
charge.
TELEPHONE TRANSACTIONS. You may make transfers by telephone, unless you elect
not to have this privilege. When authorizing a transfer, you must complete your
telephone call by the close of Jackson National's business day (usually 4:00
p.m. Eastern time) in order to receive that day's accumulation unit value for an
investment division.
Jackson National has procedures which are designed to provide reasonable
assurance that telephone authorizations are genuine. Our procedures include
requesting identifying information and tape recording telephone communications.
Jackson National and its affiliates disclaim all liability for any claim, loss
or expense resulting from any alleged error or mistake in connection with a
telephone transfer which was not properly authorized by you. However, if Jackson
National fails to employ reasonable procedures to ensure that all telephone
transfers are properly authorized, we may be held liable for such losses.
Jackson National reserves the right to modify or discontinue at any time and
without notice the acceptance of instructions from someone other than you and/or
the telephone transfer privilege.
ACCESS TO YOUR MONEY
You can have access to the money in your contract:
o by making either a partial or complete withdrawal, or
o by electing to receive income payments.
Your beneficiary can have access to the money in your contract when a death
benefit is paid.
When you make a complete withdrawal you will receive:
1. the value of the contract on the day you made the withdrawal;
2. less any contract charges and fees;
3. less any contract enhancements applied during the prior 12 months;
4. less any premium taxes or other taxes payable; and
5. less any withdrawal charge.
Your withdrawal request must be in writing. Jackson National will accept
withdrawal requests submitted via facsimile. There are risks associated with not
requiring original signatures in order to disburse contract holder monies.
Except in connection with the systematic withdrawal program, you must withdraw
at least $500 or, if less, the entire amount in the guaranteed account or
investment division from which you are making the withdrawal.
INCOME TAXES, TAX PENALTIES AND CERTAIN RESTRICTIONS MAY APPLY TO ANY WITHDRAWAL
YOU MAKE.
There are limitations on withdrawals from qualified plans. See "Taxes."
SYSTEMATIC WITHDRAWAL PROGRAM. You can arrange to have money automatically sent
to you periodically while your contract is still in the accumulation phase. You
will have to pay taxes on money you receive and withdrawals you make before you
reach 59 1/2 may be subject to a 10% tax penalty.
We reserve the right to charge a fee for participation or to discontinue
offering this program in the future.
SUSPENSION OF WITHDRAWALS OR TRANSFERS. Jackson National may be required to
suspend or delay withdrawals or transfers from an investment division when:
a) the New York Stock Exchange is closed (other than customary weekend and
holiday closings);
b) trading on the New York Stock Exchange is restricted;
c) an emergency exists so that it is not reasonably practicable to dispose of
securities in the Separate Account or determine the division value of its
assets; or,
d) the SEC, by order, may permit for the protection of owners.
The applicable rules and regulations of the SEC will govern whether the
conditions in (b) and/or (c) exist.
Jackson National has reserved the right to defer payment for a withdrawal or
transfer from the guaranteed accounts for the period permitted by law, but not
more than six months.
INCOME PAYMENTS (THE INCOME PHASE)
The income phase occurs when you begin receiving regular payments from your
contract. The income date is the month and year in which those payments begin.
You can choose the income date and an income option.
INCOME DATE. The income date must be at least one year after your contract is
issued. The income date may not be later than your 90th birthday under a
non-qualified contract (or an earlier date under a qualified contract if
required by the qualified plan, law, or regulation). If you do not choose an
income date, the income date will be your 90th birthday under a non-qualified
contract (or an earlier date under a qualified contract if required by the
qualified plan, law, or regulation). You can change the income date at any time
before the income date currently in effect. You must give us 7 days notice.
INCOME OPTIONS. You may elect to receive a single sum or you may elect one of
the income options described below. A single sum distribution may be deemed to
be a withdrawal. If you do not choose an income option, we will assume that you
selected Option 3, which provides a life annuity with 120 months of guaranteed
payments. You can change your income option at any time before the income date.
You must give us 7 days notice.
The annuitant is the person whose life we look to when we make income payments.
(Each description assumes that you are the owner and annuitant.) The following
income options may not be available in all states.
Option 1 - Life Income. This income option provides monthly payments for
your life.
Option 2 - Joint and Survivor Annuity. This income option provides monthly
payments for your life and for the life of another person (usually your spouse)
selected by you. At the time you elect this option, you may choose whether the
payments to the survivor will continue at the full rate or at two-thirds or
one-half of the full rate.
Option 3 - Life Annuity With 120 or 240 Monthly Payments Guaranteed. This
income option provides monthly payments for the annuitant's life, but with
payments continuing to your beneficiary for the remainder of 10 or 20 years (as
you select) if the annuitant dies before the end of the selected period. If the
beneficiary does not want to receive the payments, a single lump sum may be
requested, which will be equal to the present value of the remaining payments
(as of the date of proof of death) discounted at the assumed investment rate for
a variable annuity payout option.
Option 4 - Income for a Specified Period. This income option provides
monthly payments for any number of years from 5 to 30. However, you may elect to
receive a single lump sum payment which will be equal to the present value of
the remaining payments (as of the date of proof of death) discounted at the
assumed investment rate for a variable annuity payout option.
Additional Options - Other income options may be made available by Jackson
National.
INCOME PAYMENTS. At the income date, you can choose whether payments will come
from the guaranteed accounts, the investment divisions or both. Unless you tell
us otherwise, your income payments will be based on the investment allocations
that were in place on the income date.
You can choose to have income payments made monthly, quarterly, semi-annually,
or annually. However, if you have less than $5,000 to apply toward an income
option and state law permits, Jackson National may provide your payment in a
single lump sum. Likewise, if your first income payment would be less than $50
and state law permits, Jackson National may set the frequency of payments so
that the first payment would be at least $50.
Income Payments from Investment Divisions. If you choose to have any portion of
your income payments come from the investment division(s), the dollar amount of
your payment will depend upon three things:
1. the value of your contract in the investment division(s) on the income
date;
2. the 3% assumed investment rate used in the annuity table for the
contract; and
3. the performance of the investment divisions you selected.
Jackson National calculates the dollar amount of the first income payment that
you receive from the investment divisions. We then use that amount to determine
the number of annuity units that you hold in each investment division. The
amount of each subsequent income payment is determined by multiplying the number
of annuity units that you hold in an investment division by the annuity unit
value for that investment division.
The number of annuity units that you hold in each investment division does not
change unless you reallocate your contract value among the investment divisions.
The annuity unit value of each investment division will vary based on the
investment performance of the series. If the actual investment performance
exactly matches the assumed rate at all times, the amount of each income payment
will remain equal. If the actual investment performance exceeds the assumed
rate, your income payments will increase. Similarly, if the actual investment
performance is less than the assumed rate, your income payments will decrease.
DEATH BENEFIT
The contract offers a selection of death benefits. When you purchase your
contract, you must elect the death benefit that will be available before the
income date. You may elect:
o the standard death benefit; or
o the optional enhanced death benefit.
You cannot change your election after we have issued your contract. The death
benefit is calculated as of the date we receive complete claim forms and proof
of death from the beneficiary of record. The death benefit amount remains in the
separate account and/or the guaranteed account until distribution begins. From
the time the death benefit is determined until complete distribution is made,
any amount in the separate account will be subject to investment risk, which is
borne by the beneficiary.
DEATH OF OWNER BEFORE THE INCOME DATE. If you die before moving to the income
phase, the person you have chosen as your beneficiary will receive a death
benefit. If you have a joint owner, the death benefit will be paid when the
first joint owner dies. The surviving joint owner will be treated as the
beneficiary. Any other beneficiary designated will be treated as a contingent
beneficiary. A contingent beneficiary is entitled to receive payment only after
the beneficiary dies.
Standard Death Benefit. The standard death benefit equals the greater of:
1. current contract value;
a. less any contract enhancement applied within the 12 months prior
to your death.
2. the total premiums paid prior to your death;
a. less withdrawals,
b. less withdrawal charges,
c. less contract charges and fees,
d. less premium taxes, and
e. less any contract enhancement applied within the 12 months prior
to your death.
Optional Enhanced Death Benefit. The optional enhanced death benefit is
equal to the greatest of:
1. the standard death benefit;
2. the total premiums paid prior to your death;
a. less withdrawals,
b. less withdrawal charges,
c. less contract charges and fees,
d. less premium taxes, and
e. less any contract enhancement applied within the 12 months prior
to your death,
compounded at 5% (4% if the owner is age 70 or older at the date of issue).
3. the contract value at the end of the 7th contract year;
a. plus all premiums made since the 7th year,
b. less withdrawals,
c. less withdrawal charges,
d. less contract charges and fees,
e. less premium taxes, and
f. less any contract enhancement applied within the 12 months prior
to your death,
compounded at 5% (4% if the owner is age 70 or older at the date of issue).
The optional enhanced death benefit under 2 or 3 will never exceed 250% of
premiums paid, less partial withdrawals, charges and fees, withdrawal charges,
and premium taxes.
The entire death benefit must be paid within 5 years of the date of death unless
the beneficiary elects to have the death benefit payable under an income option.
The death benefit payable under an income option must be paid over the
beneficiary's lifetime or for a period not extending beyond the beneficiary's
life expectancy. Payments must begin within one year of the date of death.
Unless the beneficiary chooses to receive the death benefit in a single sum, the
beneficiary must elect an income option within the 60 day period beginning with
the date Jackson National receives proof of death. If the beneficiary chooses to
receive the death benefit in a single sum and all the necessary requirements are
met, Jackson National will pay the death benefit within 7 days. If the
beneficiary is your spouse, he/she can continue the contract in his/her own name
at the then current contract value.
DEATH OF OWNER ON OR AFTER THE INCOME DATE. If you or a joint owner die on or
after the income date, and you are not the annuitant, any remaining payments
under the income option elected will continue at least as rapidly as under the
method of distribution in effect at the date of death. If you die, the
beneficiary becomes the owner. If the joint owner dies, the surviving joint
owner, if any, will be the designated beneficiary. Any other beneficiary
designation on record at the time of death will be treated as a contingent
beneficiary. A contingent beneficiary is entitled to receive payment only after
the beneficiary dies.
DEATH OF ANNUITANT BEFORE THE INCOME DATE. If the annuitant is not an owner or
joint owner and the annuitant dies before the income date, you become the new
annuitant. You may name a new annuitant, subject to our administrative
requirements. However, if the owner is a non-natural person (for example, a
corporation), then the death of the annuitant will be treated as the death of
the owner, and a new annuitant may not be named.
DEATH OF ANNUITANT ON OR AFTER THE INCOME DATE. If the annuitant dies on or
after the income date, any remaining payments will be as provided for in the
income option selected. Any remaining payments will be paid at least as rapidly
as under the method of distribution in effect at the annuitant's death.
TAXES
THE FOLLOWING IS GENERAL INFORMATION AND IS NOT INTENDED AS TAX ADVICE TO ANY
INDIVIDUAL. YOU SHOULD CONSULT YOUR OWN TAX ADVISER. A FURTHER DISCUSSION
REGARDING TAXES IS INCLUDED IN THE SAI.
The Internal Revenue Code (Code) provides that you will not be taxed on the
earnings on the money held in your contract until you take money out (this is
referred to as the tax-deferral that is provided by the contract or the
qualified plan). There are different rules as to how you will be taxed depending
on how you take the money out and the type of contract you have (non-qualified
or qualified).
NON-QUALIFIED CONTRACTS - GENERAL TAXATION. You will not be taxed on increases
in the value of your contract until a distribution (either as a withdrawal or as
an income payment) occurs. When you make a withdrawal you are taxed on the
amount of the withdrawal that is earnings. For income payments, a portion of
each income payment is treated as a partial return of your premium and will not
be taxed. The remaining portion of the income payment will be treated as
ordinary income. How the income payment is divided between taxable and
non-taxable portions depends on the period over which income payments are
expected to be made. Income payments received after you have received all of
your investment in the contract are treated as income.
If a non-qualified contract is owned by a non-natural person (e.g., corporation
or certain other entities other than a trust holding the contract as an agent
for a natural person), the contract will generally not be treated as an annuity
for tax purposes.
QUALIFIED AND NON-QUALIFIED CONTRACTS. If you purchase the contract as an
individual and not under any pension plan, specially sponsored program or an
individual retirement annuity, your contract is referred to as a non-qualified
contract.
If you purchase the contract under a pension plan, specially sponsored program,
or an individual retirement annuity, your contract is referred to as a qualified
contract. Examples of qualified contracts are: Individual Retirement Annuities
(IRAs), Tax-Sheltered Annuities (sometimes referred to as 403(b) contracts), and
pension and profit-sharing plans, which include 401(k) plans and H.R. 10 Plans.
A qualified contract will not provide any necessary or additional tax deferral
if it is used to fund a qualified plan that is tax deferred. However, the
contract has features and benefits other than tax deferral that may make it an
appropriate investment for a qualified plan. You should consult your tax adviser
regarding these features and benefits prior to purchasing a qualified contract.
WITHDRAWALS - NON-QUALIFIED CONTRACTS. If you make a withdrawal from your
contract, the Code generally treats the withdrawal as first coming from earnings
and then from your premium payments. Withdrawn earnings are includible in
income. Additional information is provided in the SAI.
The Code also provides that any amount received under an annuity contract which
is included in income may be subject to a 10% penalty. Some withdrawals will be
exempt from the penalty. They include any amounts: (1) paid on or after the
taxpayer reaches age 59 1/2; (2) paid after you die; (3) paid if the taxpayer
becomes totally disabled (as that term is defined in the Code); (4) paid in a
series of substantially equal payments made annually (or more frequently) for
life or life expectancy; (5) paid under an immediate annuity; or (6) which come
from premiums made prior to August 14, 1982.
WITHDRAWALS - QUALIFIED CONTRACTS. There are special rules that govern qualified
contracts. We have provided an additional discussion in the SAI.
WITHDRAWALS - TAX-SHELTERED ANNUITIES. The Code limits the withdrawal of amounts
attributable to purchase payments made under a salary reduction agreement from
Tax-Sheltered Annuities. Withdrawals can only be made when an owner: (1) reaches
age 59 1/2; (2) leaves his/her job; (3) dies; (4) becomes disabled (as that term
is defined in the Code); or (5) in the case of hardship. However, in the case of
hardship, the owner can only withdraw the premium and not any earnings.
WITHDRAWALS - ROTH IRAS. Beginning in 1998, individuals may purchase a new type
of non-deductible IRA, known as a Roth IRA. Qualified distributions from Roth
IRAs are entirely federal income tax free. A qualified distribution requires
that the individual has held the Roth IRA for at least five years and, in
addition, that the distribution is made either after the individual reaches age
59 1/2, on account of the individual's death or disability, or as qualified
first-time home purchase, subject to $10,000 lifetime maximum, for the
individual, or for a spouse, child, grandchild, or ancestor.
WITHDRAWALS - INVESTMENT ADVISER FEES. The Internal Revenue Service has, through
a series of Private Letter Rulings, held that the payment of investment adviser
fees from an IRA or a Tax-Sheltered Annuity is permissible under certain
circumstances and will not be considered a distribution for income tax purposes.
The Rulings require that in order to receive this favorable tax treatment, the
annuity contract must, under a written agreement, be solely liable (not jointly
with the contract owner) for payment of the adviser's fee and the fee must
actually be paid from the annuity contract to the adviser. Withdrawals from
non-qualified contracts for the payment of investment adviser fees will be
considered taxable distributions from the contract.
DEATH BENEFITS. Any death benefits paid under the contract are taxable to the
beneficiary. The rules governing the taxation of payments from an annuity
contract, as discussed above, generally apply to the payment of death benefits
and depend on whether the death benefits are paid as a lump sum or as annuity
payments. Estate taxes may also apply.
RESTRICTIONS UNDER THE TEXAS OPTIONAL RETIREMENT PROGRAM (ORP). Contracts issued
to participants in ORP contain restrictions required under the Texas
Administrative Code. In accordance with those restrictions, a participant in ORP
will not be permitted to make withdrawals prior to such participant's
retirement, death, attainment of age 70 1/2 or termination of employment in a
Texas public institution of higher education. The restrictions on withdrawal do
not apply in the event a participant in ORP transfers the contract value to
another approved contract or vendor during the period of ORP participation.
ASSIGNMENT. An assignment may be a taxable event. If the contract is issued
pursuant to a qualified plan, there may be limitations on your ability to assign
the contract.
DIVERSIFICATION. The Code provides that the underlying investments for a
variable annuity must satisfy certain diversification requirements in order to
be treated as an annuity contract. Jackson National believes that the underlying
investments are being managed so as to comply with these requirements.
OWNER CONTROL. Neither the Code nor the Treasury Regulations issued to date
provide guidance as to the circumstances under which you, because of the degree
of control you exercise over the underlying investments, and not Jackson
National would be considered the owner of the shares of the investment
divisions. If you are considered to be the owner of the shares, it will result
in the loss of the favorable tax treatment for the contract.
It is unknown to what extent owners are permitted to select investment
divisions, to make transfers among the investment divisions or the number and
type of investment divisions owners may select from without being considered the
owner of the shares.
Furthermore, under the Contract you may invest in the JNL/First Trust The
Dow(SM) Target 10 Series of the JNL Variable Fund V LLC (Target Series).
The investment strategy employed by the Target Series involves the purchase on a
pre-determined selection date of the common stock of a limited number of
companies meeting certain criteria. Such criteria consist of pre-set objective
standards such as highest dividend yield, price per share and market
capitalization. A pre-set number of stocks meeting such criteria (ten) are
purchased in equal amounts. The Series will purchase and sell stocks on an
on-going basis according to the pre-set criteria and percentage relationships
and will generally follow a buy and hold strategy. (See the JNL Variable Fund V
LLC prospectus.)
It is unknown what level of investment management must be exercised by a manager
of the Target Series and what amount of investment diversification of the Target
Series is required in order to preclude the existence of an unacceptable level
of owner control. As discussed above, if you are deemed to possess too much
control over the assets of the separate account, the Contract would not be given
tax-deferred treatment and therefore the earnings allocable to the Contract
would be subject to federal income tax prior to receipt by you.
If any guidance is provided by the Internal Revenue Service which is considered
a new position, then the guidance would generally be applied prospectively.
However, if such guidance is considered not to be a new position, it may be
applied retroactively. This would mean that you, as the owner of the contract,
could be treated as the owner of the investment divisions. Due to the
uncertainty in this area, Jackson National reserves the right to modify the
contract in an attempt to maintain favorable tax treatment.
OTHER INFORMATION
DOLLAR COST AVERAGING. You can arrange to automatically have a regular amount of
money periodically transferred into the investment divisions from the guaranteed
accounts or any of the other investment divisions. This theoretically gives you
a lower average cost per unit over time than you would receive if you made a one
time purchase. The more volatile investment divisions may not result in lower
average costs and such divisions may not be an appropriate source of dollar cost
averaging transfers in volatile markets. Certain restrictions may apply.
Jackson National does not currently charge for participation in this program. We
may do so in the future.
REBALANCING. You can arrange to have Jackson National automatically reallocate
money between investment divisions periodically to keep the blend you select.
Jackson National does not currently charge for participation in this program. We
may do so in the future.
FREE LOOK. You may return your contract to the selling agent or Jackson National
within twenty days after receiving it. Jackson National will return the contract
value in the investment division plus any fees and expenses deducted from the
premiums allocated to the investment divisions plus the full amount of premiums
you allocated to the guaranteed accounts. We will determine the contract value
in the investment division as of the date you mail the contract to us or the
date you return it to the selling agent. Jackson National will return premium
payment were required by law. ADVERTISING. From time to time, Jackson National
may advertise several types of performance for the investment divisions.
o Total return is the overall change in the value of an investment in an
investment division over a given period of time.
o Standardized average annual total return is calculated in accordance
with SEC guidelines.
o Non-standardized total return may be for periods other than those
required or may otherwise differ from standardized average annual
total return. For example, if a series has been in existence longer
than the investment division, we may show non-standardized performance
for periods that begin on the inception date of the series, rather
than the inception date of the investment division.
o Yield refers to the income generated by an investment over a given period
of time.
Performance will be calculated by determining the percentage change in the value
of an accumulation unit by dividing the increase (decrease) for that unit by the
value of the accumulation unit at the beginning of the period. Performance will
reflect the deduction of the insurance charges and may reflect the deduction of
the contract maintenance charge and withdrawal charge. The deduction of the
contract maintenance and/or the withdrawal charge would reduce the percentage
increase or make greater any percentage decrease.
MARKET TIMING AND ASSET ALLOCATION SERVICES. Market timing and asset allocation
services must comply with Jackson National's administrative systems, rules and
procedures.
MODIFICATION OF THE CONTRACT. Only the President, Vice President, Secretary or
Assistant Secretary of Jackson National may approve a change to or waive a
provision of the contract. Any change or waiver must be in writing. Jackson
National may change the terms of the contract in order to comply with changes in
applicable law, or otherwise as deemed necessary by Jackson National.
LEGAL PROCEEDINGS. Jackson National has been named as a defendant in civil
litigation proceedings substantially similar to other litigation brought against
many life insurers alleging misconduct in the sale of insurance products. These
matters are sometimes referred to as market conduct litigation. The litigation
against JNL purports to include purchasers of certain life insurance and annuity
products from JNL during the period from 1981 to present. JNL has retained
national and local counsel experienced in the handling of such litigation, and
is vigorously defending these actions. A favorable outcome is anticipated, and
at this time it is not feasible to make a meaningful estimate of the amount or
range of loss that could result from an unfavorable outcome in such actions. In
addition, JNL is a defendant in several individual actions that involve similar
issues, including an August 1999 verdict against JNL for $32.5 million in
punitive damages. JNL has appealed the verdict on the basis that it is not
supported by the facts or the law, and a ruling reversing the judgment is being
sought.
QUESTIONS. If you have questions about your contract, you may call or write to
us at:
o Jackson National Life Annuity Service Center: (800) 766-4683, P.O. Box
378002, Denver, Colorado 80237-8002
o Institutional Marketing Group Service Center: (800) 777-7779, P.O. Box
30386, Lansing, Michigan 48909-9692.
<PAGE>
TABLE OF CONTENTS OF THE STATEMENT OF ADDITIONAL INFORMATION
General Information and History ......................................... 2
Services ................................................................ 2
Purchase of Securities Being Offered .................................... 3
Underwriters ............................................................ 3
Calculation of Performance .............................................. 3
Additional Tax Information .............................................. 6
Income Payments; Net Investment Factor ..................................17
Financial Statements ....................................................19
<PAGE>
STATEMENT OF ADDITIONAL INFORMATION
MAY 1, 2000
INDIVIDUAL DEFERRED FIXED AND VARIABLE ANNUITY CONTRACTS
ISSUED BY THE JACKSON NATIONAL SEPARATE ACCOUNT V
OF JACKSON NATIONAL LIFE INSURANCE COMPANY
This Statement of Additional Information is not a prospectus. It contains
information in addition to and more detailed than set forth in the Prospectus
and should be read in conjunction with the Prospectus dated May 1, 2000. The
Prospectus may be obtained from Jackson National Life Insurance Company by
writing P. O. Box 378002, Denver, Colorado 80237-8002, or calling
1-800-766-4683.
TABLE OF CONTENTS
PAGE
General Information and History..............................................2
Services.....................................................................2
Purchase of Securities Being Offered.........................................3
Underwriters.................................................................3
Calculation of Performance...................................................3
Additional Tax Information...................................................6
Income Payments; Net Investment Factor .....................................16
Financial Statements .......................................................18
<PAGE>
GENERAL INFORMATION AND HISTORY
Jackson National Separate Account V (Separate Account) is a separate investment
account of Jackson National Life Insurance Company (Jackson National). Jackson
National is a wholly-owned subsidiary of Brooke Life Insurance Company, and is
ultimately a wholly-owned subsidiary of Prudential plc, London, England, a life
insurance company in the United Kingdom.
The JNL/J.P. Morgan Enhanced S&P 500(R) Stock Index Portfolio is not sponsored,
endorsed, sold or promoted by Standard & Poor's, a division of The McGraw-Hill
Companies, Inc. (S&P). S&P makes no representation or warranty, express or
implied, to the owners of the Division or any member of the public regarding the
advisability of investing in securities generally or in the Divisionparticularly
or the ability of the S&P 500 Index to track general stock market performance.
S&P's only relationship to the Licensee is the licensing of certain trademarks
and trade names of S&P and of the S&P 500 Index which are determined, composed
and calculated by S&P without regard to the Licensee or the Division. S&P has no
obligation to take the needs of the Licensee or the owners of the Division into
consideration in determining, composing or calculating the S&P 500 Index. S&P is
not responsible for and has not participated in the determination of the prices
and amount of the Division or the timing of the issuance or sale of the Division
or in the determination or calculation of the equation by which the Division is
to be converted into cash. S&P has no obligation or liability in connection with
the administration, marketing or trading of the Division.
S&P DOES NOT GUARANTEE THE ACCURACY AND/OR THE COMPLETENESS OF THE S&P 500 INDEX
OR ANY DATA INCLUDED THEREIN AND S&P SHALL HAVE NO LIABILITY FOR ANY ERRORS,
OMISSIONS, OR INTERRUPTIONS THEREIN. S&P MAKES NO WARRANTY, EXPRESS OR IMPLIED,
AS TO RESULTS TO BE OBTAINED BY LICENSEE, OWNERS OF THE DIVISION, OR ANY OTHER
PERSON OR ENTITY FROM THE USE OF THE S&P 500 INDEX OR ANY DATA INCLUDED THEREIN.
S&P MAKES NO EXPRESS OR IMPLIED WARRANTIES, AND EXPRESSLY DISCLAIMS ALL
WARRANTIES OF MERCHANTABILITY OR FITNESS FOR A PARTICULAR PURPOSE OR USE WITH
RESPECT TO THE S&P 500 INDEX OR ANY DATA INCLUDED THEREIN. WITHOUT LIMITING ANY
OF THE FOREGOING, IN NO EVENT SHALL S&P HAVE ANY LIABILITY FOR ANY SPECIAL,
PUNITIVE, INDIRECT, OR CONSEQUENTIAL DAMAGES (INCLUDING LOST PROFITS), EVEN IF
NOTIFIED OF THE POSSIBILITY OF SUCH DAMAGES.
SERVICES
Jackson National is the custodian of the assets of the Separate Account. The
custodian has custody of all cash of the Separate Account and attends to the
collection of proceeds of shares of the underlying funds bought and sold by the
Separate Account.
Effective October 15, 1999, KPMG LLP, 303 East Wacker Drive, Chicago, Illinois
60601, assumed responsibility for certain of the audit and reporting functions
previously provided by PricewaterhouseCoopers LLP to Jackson National. These
changes were put into effect by Jackson National as of the date referenced
above. Neither Jackson National nor the Separate Account has received an adverse
opinion, nor were there any disagreements with PricewaterhouseCoopers LLP.
Blazzard, Grodd & Hasenauer, P.C. of Westport, Connecticut has provided advice
on certain matters relating to the federal securities and income tax laws in
connection with the contracts described in the Prospectus.
PURCHASE OF SECURITIES BEING OFFERED
The contracts will be sold by licensed insurance agents in states where the
contracts may be lawfully sold. The agents will be registered representatives of
broker-dealers that are registered under the Securities Exchange Act of 1934 and
members of the National Association of Securities Dealers, Inc. (NASD).
UNDERWRITERS
The contracts are offered continuously and are distributed by Jackson National
Life Distributors, Inc. (JNLD), 401 Wilshire Boulevard, Suite 1200, Santa
Monica, California 90401. JNLD is a subsidiary of Jackson National.
No underwriting commissions are paid by Jackson National to JNLD.
CALCULATION OF PERFORMANCE
When Jackson National advertises performance for an investment division (except
the PPM America/JNL Money Market Division), we will include quotations of
standardized average annual total return to facilitate comparison with
standardized average annual total return advertised by other variable annuity
separate accounts. Standardized average annual total return for an investment
division will be shown for periods beginning on the date the investment division
first invested in the corresponding series. We will calculate standardized
average annual total return according to the standard methods prescribed by
rules of the Securities and Exchange Commission.
Standardized average annual total return for a specific period is calculated by
taking a hypothetical $1,000 investment in an investment division at the
offering on the first day of the period ("initial investment"), and computing
the ending redeemable value ("redeemable value") of that investment at the end
of the period. The redeemable value is then divided by the initial investment
and expressed as a percentage, carried to at least the nearest hundredth of a
percent. Standardized average annual total return is annualized and reflects the
deduction of the insurance charges and the contract maintenance charge. The
redeemable value also reflects the effect of any applicable withdrawal charge
that may be imposed at the end of the period. No deduction is made for premium
taxes which may be assessed by certain states.
Jackson National may also advertise non-standardized total return.
Non-standardized total return may be for periods other than those required to be
presented or may otherwise differ from standardized average annual total return.
Because the contract is designed for long term investment, non-standardized
total return that does not reflect the deduction of any applicable withdrawal
charge may be advertised. Reflecting the deduction of the withdrawal charge
decreases the level of performance advertised. Non-standardized total return may
also assume a larger initial investment which more closely approximates the size
of a typical contract.
Standardized average annual total return quotations will be current to the last
day of the calendar quarter preceding the date on which an advertisement is
submitted for publication. Both standardized average annual total return
quotations and non-standardized total return quotations will be based on rolling
calendar quarters and will cover at least periods of one, five, and ten years,
or a period covering the time the investment division has been in existence, if
it has not been in existence for one of the prescribed periods. If the
corresponding series has been in existence for longer than the investment
division, the non-standardized total return quotations will show the investment
performance the investment division would have achieved (reduced by the
applicable charges) had it been invested in the series for the period quoted.
Standardized average annual total return is not available for periods before the
investment division was in existence.
Quotations of standardized average annual total return and non-standardized
total return are based upon historical earnings and will fluctuate. Any
quotation of performance should not be considered a guarantee of future
performance. Factors affecting the performance of an investment division and it
corresponding series include general market conditions, operating expenses and
investment management. An owner's withdrawal value upon surrender of a contract
may be more or less than original cost.
Jackson National may advertise the current annualized yield for a 30-day period
for an investment division. The annualized yield of an investment division
refers to the income generated by the investment division over a specified
30-day period. Because this yield is annualized, the yield generated by an
investment division during the 30-day period is assumed to be generated each
30-day period. The yield is computed by dividing the net investment income per
accumulation unit earned during the period by the price per unit on the last day
of the period, according to the following formula:
a-b 6
YIELD = 2[(---+1) -1]
cd
Where:
a = net investment income earned during the period by
the series attributable to shares owned by the
investment division.
b = expenses for the investment division accrued for
the period (net of reimbursements).
c = the average daily number of accumulation units
outstanding during the period.
d = the maximum offering price per accumulation unit on
the last day of the period.
Net investment income will be determined in accordance with rules established by
the Securities and Exchange Commission. Accrued expenses will include all
recurring fees that are charged to all contracts.
Because of the charges and deductions imposed by the Separate Account, the yield
for an investment division will be lower than the yield for the corresponding
series. The yield on amounts held in the investment division normally will
fluctuate over time. Therefore, the disclosed yield for any given period is not
an indication or representation of future yields or rates of return. An
investment division's actual yield will be affected by the types and quality of
portfolio securities held by the series and the series operating expenses.
Any current yield quotations of the PPM America/JNL Money Market Division,
subject to Rule 482 under the Securities Act of 1933, will consist of a seven
calendar day historical yield, carried at least to the nearest hundredth of a
percent. We may advertise yield for the Division based on different time
periods, but we will accompany it with a yield quotation based on a seven day
calendar period. The PPM America/JNL Money Market Division's yield will be
calculated by determining the net change, exclusive of capital changes, in the
value of a hypothetical pre-existing account having a balance of one
accumulation unit at the beginning of the base period, subtracting a
hypothetical charge reflecting deductions from contracts, and dividing the net
change in account value by the value of the account at the beginning of the
period to obtain a base period return and multiplying the base period return by
(365/7). The PPM America/JNL Money Market Division's effective yield is computed
similarly but includes the effect of assumed compounding on an annualized basis
of the current yield quotations of the Division.
The PPM America/JNL Money Market Division's yield and effective yield will
fluctuate daily. Actual yields will depend on factors such as the type of
instruments in the series' portfolio, portfolio quality and average maturity,
changes in interest rates, and the series' expenses. Although the investment
division determines its yield on the basis of a seven calendar day period, it
may use a different time period on occasion. The yield quotes may reflect the
expense limitations described in the series' Prospectus or Statement of
Additional Information. There is no assurance that the yields quoted on any
given occasion will be maintained for any period of time and there is no
guarantee that the net asset values will remain constant. It should be noted
that neither a contract owner's investment in the PPM America/JNL Money Market
Division nor that Division's investment in the PPM America/JNL Money Market
Series, is guaranteed or insured. Yields of other money market funds may not be
comparable if a different base or another method of calculation is used.
ADDITIONAL TAX INFORMATION
NOTE: INFORMATION CONTAINED HEREIN SHOULD NOT BE SUBSTITUTED FOR THE ADVICE OF A
PERSONAL TAX ADVISER. JACKSON NATIONAL DOES NOT MAKE ANY GUARANTEE REGARDING THE
TAX STATUS OF ANY CONTRACT OR ANY TRANSACTION INVOLVING THE CONTRACTS.
PURCHASERS BEAR THE COMPLETE RISK THAT THE CONTRACTS MAY NOT BE TREATED AS
"ANNUITY CONTRACTS" UNDER FEDERAL INCOME TAX LAWS. IT SHOULD BE FURTHER
UNDERSTOOD THAT THE FOLLOWING DISCUSSION IS NOT EXHAUSTIVE AND THAT SPECIAL
RULES NOT DESCRIBED IN THE PROSPECTUS MAY BE APPLICABLE IN CERTAIN SITUATIONS.
MOREOVER, NO ATTEMPT HAS BEEN MADE TO CONSIDER ANY APPLICABLE STATE OR OTHER TAX
LAWS.
General
Section 72 of the Internal Revenue Code of 1986, as amended (the "Code"),
governs taxation of annuities in general. An individual owner is not taxed on
increases in the value of a contract until distribution occurs, either in the
form of a withdrawal or as annuity payments under the annuity option elected.
For a withdrawal received as a total surrender (total redemption or a death
benefit), the recipient is taxed on the portion of the payment that exceeds the
cost basis of the contract. For a payment received as a partial withdrawal,
federal tax liability is generally determined on a last-in, first-out basis,
meaning taxable income is withdrawn before the cost basis of the contract is
withdrawn. For contracts issued in connection with non-qualified plans, the cost
basis is generally the premiums, while for contracts issued in connection with
qualified plans there may be no cost basis. The taxable portion of a withdrawal
is taxed at ordinary income tax rates. Tax penalties may also apply.
For annuity payments, a portion of each payment in excess of an exclusion amount
is includable in taxable income. The exclusion amount for payments based on a
fixed annuity option is determined by multiplying the payment by the ratio that
the cost basis of the contract (adjusted for any period certain or refund
feature) bears to the expected return under the contract. The exclusion amount
for payments based on a variable annuity option is determined by dividing the
cost basis of the contract (adjusted for any period certain or refund guarantee)
by the number of years over which the annuity is expected to be paid. Payments
received after the investment in the contract has been recovered (i.e. when the
total of the excludable amounts equals the investment in the contract) are fully
taxable. The taxable portion is taxed at ordinary income tax rates. For certain
types of qualified plans there may be no cost basis in the contract within the
meaning of Section 72 of the Code. Owners, annuitants and beneficiaries under
the contracts should seek competent financial advice about the tax consequences
of distributions.
Jackson National is taxed as a life insurance company under the Code. For
federal income tax purposes, the Separate Account is not a separate entity from
Jackson National and its operations form a part of Jackson National.
Withholding Tax on Distributions
The Code generally requires Jackson National (or, in some cases, a plan
administrator) to withhold tax on the taxable portion of any distribution or
withdrawal from a contract. For "eligible rollover distributions" from contracts
issued under certain types of qualified plans, 20% of the distribution must be
withheld, unless the payee elects to have the distribution "rolled over" to
another eligible plan in a direct transfer. This requirement is mandatory and
cannot be waived by the owner.
An "eligible rollover distribution" is the estimated taxable portion of any
amount received by a covered employee from a plan qualified under Section 401(a)
or 403(a) of the Code, or from a tax sheltered annuity qualified under Section
403(b) of the Code (other than (1) a series of substantially equal annuity
payments for the life (or life expectancy) of the employee, or joint lives (or
joint life expectancies) of the employee, and his or her designated beneficiary,
or for a specified period of ten years or more; (2) minimum distributions
required to be made under the Code; and (3) hardship withdrawals). Failure to
"rollover" the entire amount of an eligible rollover distribution (including an
amount equal to the 20% portion of the distribution that was withheld) could
have adverse tax consequences, including the imposition of a penalty tax on
premature withdrawals, described later in this section.
Withdrawals or distributions from a contract other than eligible rollover
distributions are also subject to withholding on the estimated taxable portion
of the distribution, but the owner may elect in such cases to waive the
withholding requirement. If not waived, withholding is imposed (1) for periodic
payments, at the rate that would be imposed if the payments were wages, or (2)
for other distributions, at the rate of 10%. If no withholding exemption
certificate is in effect for the payee, the rate under (1) above is computed by
treating the payee as a married individual claiming 3 withholding exemptions.
Generally, the amount of any payment of interest to a non-resident alien of the
United States shall be subject to withholding of a tax equal to thirty (30%)
percent of such amount or, if applicable, a lower treaty rate. A payment may not
be subject to withholding where the recipient sufficiently establishes that such
payment is effectively connected to the recipient's conduct of a trade or
business in the United States and such payment is included in recipient's gross
income.
Diversification -- Separate Account Investments
Section 817(h) of the Code imposes certain diversification standards on the
underlying assets of variable annuity contracts. The Code provides that a
variable annuity contract will not be treated as an annuity contract for any
period (and any subsequent period) for which the investments are not adequately
diversified, in accordance with regulations prescribed by the United States
Treasury Department ("Treasury Department"). Disqualification of the contract as
an annuity contract would result in imposition of federal income tax to the
owner with respect to earnings allocable to the contract prior to the receipt of
payments under the contract. The Code contains a safe harbor provision which
provides that annuity contracts such as the contracts meet the diversification
requirements if, as of the close of each calendar quarter, the underlying assets
meet the diversification standards for a regulated investment company, and no
more than 55% of the total assets consist of cash, cash items, U.S. government
securities and securities of other regulated investment companies.
The Treasury Department has issued Regulations establishing diversification
requirements for the mutual funds underlying variable contracts. The Regulations
amplify the diversification requirements for variable contracts set forth in the
Code and provide an alternative to the safe harbor provision described above.
Under the Regulations, a mutual fund will be deemed adequately diversified if
(1) no more than 55% of the value of the total assets of the mutual fund is
represented by any one investment; (2) no more than 70% of the value of the
total assets of the mutual fund is represented by any two investments; (3) no
more than 80% of the value of the total assets of the mutual fund is represented
by any three investments; and (4) no more than 90% of the value of the total
assets of the mutual fund is represented by any four investments.
Jackson National intends that each series of the JNL Series Trust will be
managed by its respective investment adviser in such a manner as to comply with
these diversification requirements.
The Treasury Department has indicated that the diversification Regulations do
not provide guidance regarding the circumstances in which contract owner control
of the investments of the Separate Account will cause the contract owner to be
treated as the owner of the assets of the Separate Account, thereby resulting in
the loss of favorable tax treatment of the contract. At this time it cannot be
determined whether additional guidance will be provided and what standards may
be contained in such guidance.
The amount of owner control which may be exercised under the contract is
different in some respects from the situations addressed in published rulings
issued by the Internal Revenue Service in which it was held that the policy
owner was not the owner of the assets of the separate account. It is unknown
whether these differences, such as the owner's ability to transfer among
investment choices or the number and type of investment choices available, would
cause the owner to be considered as the owner of the assets of the Separate
Account resulting in the imposition of federal income tax to the owner with
respect to earnings allocable to the contract prior to receipt of payments under
the contract.
Furthermore, under the Contract you may invest in the JNL/First Trust The
Dow(SM) Target 10 Series of the JNL Variable Fund V LLC (Target Series).
The investment strategy employed by the Target Series involves the purchase on a
pre-determined selection date of the common stock of a limited number of
companies meeting certain criteria. Such criteria consist of pre-set objective
standards such as highest dividend yield, price per share and market
capitalization. A pre-set number of stocks meeting such criteria (ten) are
purchased in equal amounts. The Series will purchase and sell stocks on an
on-going basis according to the pre-set criteria and percentage relationships
and will generally follow a buy and hold strategy. (See the JNL Variable Fund V
LLC prospectus.)
It is unknown what level of investment management must be exercised by a manager
of the Target Series and what amount of investment diversification of the Target
Series is required in order to preclude the existence of an unacceptable level
of owner control. As discussed above, if you are deemed to possess too much
control over the assets of the Separate Account, the contract would not be given
tax-deferred treatment and therefore the earnings allocable to the contract
would be subject to federal income tax prior to receipt by you.
In the event any forthcoming guidance or ruling is considered to set forth a new
position, such guidance or ruling will generally be applied only prospectively.
However, if such ruling or guidance was not considered to set forth a new
position, it may be applied retroactively resulting in the owner being
retroactively determined to be the owner of the assets of the Separate Account.
Due to the uncertainty in this area, Jackson National reserves the right to
modify the contract in an attempt to maintain favorable tax treatment.
Multiple Contracts
The Code provides that multiple annuity contracts which are issued within a
calendar year to the same contract owner by one company or its affiliates are
treated as one annuity contract for purposes of determining the tax consequences
of any distribution. Such treatment may result in adverse tax consequences
including more rapid taxation of the distributed amounts from such multiple
contracts. For purposes of this rule, contracts received in a Section 1035
exchange will be considered issued in the year of the exchange. Owners should
consult a tax adviser prior to purchasing more than one annuity contract in any
calendar year.
Partial 1035 Exchanges
Section 1035 of the Code provides that an annuity contract may be exchanged in a
tax-free transaction for another annuity contract. Historically, it was presumed
that only the exchange of an entire contract, as opposed to a partial exchange,
would be accorded tax-free status. In 1998 in Conway vs. Commissioner, the Tax
Court held that the direct transfer of a portion of an annuity contract into
another annuity contract qualified as a non-taxable exchange. On November 22,
1999, the Internal Revenue Service filed an Action on Decision which indicated
that it acquiesced in the Tax Court decision in Conway. However, in its
acquiesence with the decision of the Tax Court, the Internal Revenue Service
stated that it will challenge transactions where taxpayers enter into a series
of partial exchanges and annuitizations as part of a design to avoid application
of the 10% premature distribution penalty or other limitations imposed on
annuity contracts under the Code. In the absence of further guidance from the
Internal Revenue Service it is unclear what specific types of partial exchange
designs and transactions will be challenged by the Internal Revenue Service. Due
to the uncertainty in this area owners should consult their own tax advisers
prior to entering into a partial exchange of an annuity contract.
Contracts Owned by Other than Natural Persons
Under Section 72(u) of the Code, the investment earnings on premiums for
contracts will be taxed currently to the owner if the owner is a non-natural
person, e.g., a corporation or certain other entities. Such contracts generally
will not be treated as annuities for federal income tax purposes. However, this
treatment is not applied to contracts held by a trust or other entity as an
agent for a natural person nor to contracts held by certain qualified plans.
Purchasers should consult their own tax counsel or other tax adviser before
purchasing a contract to be owned by a non-natural person.
Tax Treatment of Assignments
An assignment or pledge of a contract may have tax consequences, and may also be
prohibited by ERISA in some circumstances. Owners should, therefore, consult
competent legal advisers should they wish to assign or pledge their contracts.
Death Benefits
Any death benefits paid under the Contact are taxable to the beneficiary. The
rules governing the taxation of payments from an annuity contract, as discussed
above, generally apply to the payment of death benefits and depend on whether
the death benefits are paid as a lump sum or as annuity payments. Estate taxes
may also apply.
Qualified Plans
The contracts offered by the Prospectus are designed to be suitable for use
under various types of qualified plans. Taxation of owners in each qualified
plan varies with the type of plan and terms and conditions of each specific
plan. Owners, annuitants and beneficiaries are cautioned that benefits under a
qualified plan may be subject to the terms and conditions of the plan,
regardless of the terms and conditions of the contracts issued to fund the plan.
Tax Treatment of Withdrawals
Non-Qualified Plans
Section 72 of the Code governs treatment of distributions from annuity
contracts. It provides that if the contract value exceeds the aggregate premiums
made, any amount withdrawn not in the form of an annuity payment will be treated
as coming first from the earnings and then, only after the income portion is
exhausted, as coming from the principal. Withdrawn earnings are included in a
taxpayer's gross income. Section 72 further provides that a 10% penalty will
apply to the income portion of any distribution. The penalty is not imposed on
amounts received: (1) after the taxpayer reaches 59 1/2; (2) upon the death of
the owner; (3) if the taxpayer is totally disabled as defined in Section
72(m)(7) of the Code; (4) in a series of substantially equal periodic payments
made at least annually for the life (or life expectancy) of the taxpayer or for
the joint lives (or joint life expectancies) of the taxpayer and his
beneficiary; (5) under an immediate annuity; or (6) which are allocable to
premium payments made prior to August 14, 1982.
With respect to (4) above, if the series of substantially equal periodic
payments is modified before the later of your attaining age 59 1/2 or 5 years
from the date of the first periodic payment, then the tax for the year of the
modification is increased by an amount equal to the tax which would have been
imposed (the 10% penalty tax) but for the exception, plus interest for the tax
years in which the exception was used.
Qualified Plans
In the case of a withdrawal under a qualified contract, a ratable portion of the
amount received is taxable, generally based on the ratio of the individual's
cost basis to the individual's total accrued benefit under the retirement plan.
Special tax rules may be available for certain distributions from a qualified
contract. Section 72(t) of the Code imposes a 10% penalty tax on the taxable
portion of any distribution from qualified retirement plans, including contracts
issued and qualified under Code Sections 401 (Pension and Profit Sharing plans),
403(b) (tax-sheltered annuities) and 408 and 408A (IRAs). To the extent amounts
are not included in gross income because they have been rolled over to an IRA or
to another eligible qualified plan, no tax penalty will be imposed.
The tax penalty will not apply to the following distributions: (1) if
distribution is made on or after the date on which the owner or annuitant (as
applicable) reaches age 59 1/2; (2) distributions following the death or
disability of the owner or annuitant (as applicable) (for this purpose
"disability" is defined in Section 72(m)(7) of the Code); (3) after separation
from service, distributions that are part of substantially equal periodic
payments made not less frequently than annually for the life (or life
expectancy) of the owner or annuitant (as applicable) or the joint lives (or
joint life expectancies) of such owner or annuitant (as applicable) and his or
her designated beneficiary; (4) distributions to an owner or annuitant (as
applicable) who has separated from service after he has attained age 55; (5)
distributions made to the owner or annuitant (as applicable) to the extent such
distributions do not exceed the amount allowable as a deduction under Code
Section 213 to the owner or annuitant (as applicable) for amounts paid during
the taxable year for medical care; (6) distributions made to an alternate payee
pursuant to a qualified domestic relations order; (7) distributions made on
account of an IRS levy upon the qualified contracts; (8) distributions from an
IRA for the purchase of medical insurance (as described in Section 213(d)(1)(D)
of the Code) for the contract owner or annuitant (as applicable) and his or her
spouse and dependents if the contract owner or annuitant (as applicable) has
received unemployment compensation for at least 12 weeks (this exception will no
longer apply after the contract owner or annuitant (as applicable) has been
re-employed for at least 60 days); (9) distributions from an Individual
Retirement Annuity made to the owner or annuitant (as applicable) to the extent
such distributions do not exceed the qualified higher education expenses (as
defined in Section 72(t)(7) of the Code) of the owner or annuitant (as
applicable) for the taxable year; and (10) distributions from an Individual
Retirement Annuity made to the owner or annuitant (as applicable) which are
qualified first-time home buyer distributions (as defined in Section 72(t)(8) of
the Code). The exception stated in items (4) and (6) above do not apply in the
case of an IRA. The exception stated in (3) above applies to an IRA without the
requirement that there be a separation from service.
With respect to (3) above, if the series of substantially equal periodic
payments is modified before the later of your attaining age 59 1/2 or 5 years
from the date of the first periodic payment, then the tax for the year of the
modification is increased by an amount equal to the tax which would have been
imposed (the 10% penalty tax) but for the exception, plus interest for the tax
years in which the exception was used.
Withdrawals of amounts attributable to contributions made pursuant to a salary
reduction agreement (in accordance with Section 403(b)(11) of the Code) are
limited to the following: when the owner attains age 59 1/2, separates from
services, dies, becomes disabled (within the meaning of Section 72(m)(7) of the
Code), or in the case of hardship. Hardship withdrawals do not include any
earnings on salary reduction contributions. These limitations on withdrawals
apply to: (1) salary reduction contributions made after December 31, 1988; (2)
income attributable to such contributions; and (3) income attributable to
amounts held as of December 31, 1988. The limitations on withdrawals do not
affect rollovers or exchanges between certain qualified plans. Tax penalties may
also apply. While the foregoing limitations only apply to certain contracts
issued in connection with Section 403(b) qualified plans, all owners should seek
competent tax advice regarding any withdrawals or distributions.
The taxable portion of a withdrawal or distribution from contracts issued under
certain types of plans may, under some circumstances, be "rolled over" into
another eligible plan so as to continue to defer income tax on the taxable
portion. Effective January 1, 1993, such treatment is available for an "eligible
rollover distribution" made by certain types of plans (as described above under
"Taxes -- Withholding Tax on Distributions") that is transferred within 60 days
of receipt into another eligible plan or an IRA, or an individual retirement
account described in section 408(a) of the Code. Plans making such eligible
rollover distributions are also required, with some exceptions specified in the
Code, to provide for a direct transfer of the distribution to the transferee
plan designated by the recipient.
Amounts received from IRAs may also be rolled over into other IRAs, individual
retirement accounts or certain other plans, subject to limitations set forth in
the Code.
Generally, distributions from a qualified plan must commence no later than April
1 of the calendar year following the year in which the employee attains the
later of age 70 1/2 or the date of retirement. In the case of an IRA,
distribution must commence no later than April 1 of the calendar year following
the year in which the owner attains age 70 1/2. Required distributions must be
over a period not exceeding the life or life expectancy of the individual or the
joint lives or life expectancies of the individual and his or her designated
beneficiary. If the required minimum distributions are not made, a 50% penalty
tax is imposed as to the amount not distributed.
Types of Qualified Plans
The Contracts offered herein are designed to be suitable for use under various
types of Qualified Plans. Taxation of participants in each Qualified Plan varies
with the type of plan and terms and conditions of each specific plan. Owners,
Annuitants and Beneficiaries are cautioned that benefits under a Qualified Plan
may be subject to the terms and conditions of the plan regardless of the terms
and conditions of the Contracts issued pursuant to the plan. Some retirement
plans are subject to distribution and other requirements that are not
incorporated into the Company's administrative procedures. The Company is not
bound by the terms and conditions of such plans to the extent such terms
conflict with the terms of a Contract, unless the Company specifically consents
to be bound. Owners, Annuitants and Beneficiaries are responsible for
determining that contributions, distributions and other transactions with
respect to the Contracts comply with applicable law.
A Qualified Contract will not provide any necessary or additional tax deferral
if it is used to fund a Qualified Plan that is tax deferred. However, the
Contract has features and benefits other than tax deferral that may make it an
appropriate investment for a Qualified Plan. Following are generally
descriptions of the types of Qualified Plans with which the Contracts may be
used. Such descriptions are not exhaustive and are for general informational
purposes only. The tax rules regarding Qualified Plans are very complex and will
have differing applications depending on individual facts and circumstances.
Each purchaser should obtain competent tax advice prior to purchasing a Contract
issued under a Qualified Plan.
Contracts issued pursuant to Qualified Plans include special provisions
restricting Contract provisions that may otherwise be available as described
herein. Generally, Contract issued pursuant to Qualified Plans are not
transferable except upon surrender or annuitization. Various penalty and excise
taxes may apply to contributions or distributions made in violation of
applicable limitations. Furthermore, certain withdrawal penalties and
restrictions may apply to surrenders from Qualified Contracts. (See "Tax
Treatment of Withdrawals - Qualified Contracts" below.)
On July 6, 1983, the Supreme Court decided in Arizona Governing Committee v.
Norris that optional annuity benefits provided under an employer's deferred
compensation plan could not, under Title VII of the Civil Rights Act of 1964,
vary between men and women. The Contracts sold by the Company in connection with
certain Qualified Plans will utilize tables which do not differentiate on the
basis of sex. Such annuity tables will also be available for use in connection
with certain non-qualified deferred compensation plans.
(a) Tax-Sheltered Annuities
Section 403(b) of the Code permits the purchase of "tax-sheltered
annuities" by public schools and certain charitable, educational and
scientific organizations described in Section 501(c) (3) of the Code.
These qualifying employers may make contributions to the contracts for
the benefit of their employees. Such contributions are not included in
the gross income of the employee until the employee receives
distributions from the contract. The amount of contributions to the
tax-sheltered annuity is limited to certain maximums imposed by the
Code. Furthermore, the Code sets forth additional restrictions
governing such items as transferability, distributions,
non-discrimination and withdrawals. Employee loans are not allowed
under these contracts. Any employee should obtain competent tax advice
as to the tax treatment and suitability of such an investment.
(b) Individual Retirement Annuities
Section 408(b) of the Code permits eligible individuals to contribute
to an individual retirement program known as an "Individual Retirement
Annuity" ("IRA"). Under applicable limitations, certain amounts may be
contributed to an IRA which will be deductible from the individual's
taxable income. These IRAs are subject to limitations on eligibility,
contributions, transferability and distributions. Sales of contracts
for use with IRAs are subject to special requirements imposed by the
Code, including the requirement that certain informational disclosure
be given to persons desiring to establish an IRA. Purchasers of
contracts to be qualified as IRAs should obtain competent tax advice as
to the tax treatment and suitability of such an investment.
(c) Roth IRAs
Section 408A of the Code provides that beginning in 1998, individuals
may purchase a new type of non-deductible IRA, known as a Roth IRA.
Purchase payments for a Roth IRA are limited to a maximum of $2,000 per
year and are not deductible from taxable income. Lower maximum
limitations apply to individuals with adjusted gross incomes between
$95,000 and $110,000 in the case of single taxpayers, between $150,000
and $160,000 in the case of married taxpayers filing joint returns, and
between $0 and $10,000 in the case of married taxpayers filing
separately. An overall $2,000 annual limitation continues to apply to
all of a taxpayer's IRA contributions, including Roth IRAs and non-Roth
IRAs.
Qualified distributions from Roth IRAs are free from federal income
tax. A qualified distribution requires that the individual has held the
Roth IRA for at least five years and, in addition, that the
distribution is made either after the individual reaches age 59 1/2, on
the individual's death or disability, or as a qualified first-time home
purchase, subject to a $10,000 lifetime maximum, for the individual, a
spouse, child, grandchild, or ancestor. Any distribution which is not a
qualified distribution is taxable to the extent of earnings in the
distribution. Distributions are treated as made from contributions
first and therefore no distributions are taxable until distributions
exceed the amount of contributions to the Roth IRA. The 10% penalty tax
and the regular IRA exceptions to the 10% penalty tax apply to taxable
distributions from a Roth IRA.
Amounts may be rolled over from one Roth IRA to another Roth IRA.
Furthermore, an individual may make a rollover contribution from a
non-Roth IRA to a Roth IRA, unless the individual has adjusted gross
income over $100,000 or the individual is a married taxpayer filing a
separate return. The individual must pay tax on any portion of the IRA
being rolled over that represents income or a previously deductible IRA
contribution. There are no similar limitations on rollovers from a Roth
IRA to another Roth IRA.
(d) Pension and Profit-Sharing Plans
Sections 401(a) and 401(k) of the Code permit employers, including
self-employed individuals, to establish various types of retirement
plans for employees. These retirement plans may permit the purchase of
the contracts to provide benefits under the plan. Contributions to the
plan for the benefit of employees will not be included in the gross
income of the employee until distributed from the plan. The tax
consequences to owners may vary depending upon the particular plan
design. However, the Code places limitations on all plans on such items
as amount of allowable contributions; form, manner and timing of
distributions; vesting and non-forfeitability of interests;
nondiscrimination in eligibility and participation; and the tax
treatment of distributions, transferability of benefits, withdrawals
and surrenders. Purchasers of contracts for use with pension or profit
sharing plans should obtain competent tax advice as to the tax
treatment and suitability of such an investment.
(e) Non-Qualified Deferred Compensation Plans -- Section 457
Under Code provisions, employees and independent contracts performing
services for state and local governments and other tax-exempt
organizations may participate in Deferred Compensation Plans Under
Section 457 of the Code. The amounts deferred under a Plan which meets
the requirements of Section 457 of the Code are not taxable as income
to the participant until paid or otherwise made available to the
participant or beneficiary. As a general rule, the maximum amount which
can be deferred in any one year is the lesser of $8,000 or 33 1/3
percent of the participant's includible compensation. However, in
limited circumstances, the plan may provided for additional catch-up
contributions in each of the last three years before normal retirement
age. Furthermore, the Code provides additional requirements and
restrictions regarding eligibility and distributions.
All of the assets and income of a Plan established by governmental
employer after August 20, 1996, must be held in trust for the exclusive
benefit of participants and their beneficiaries. For this purpose,
custodial accounts and certain annuity contracts are treated as trusts.
Plans that were in existence on August 20, 1996 may be amended to
satisfy the trust and exclusive benefit requirement any time prior to
January 1, 1999, and must be amended not later than that date to
continue to receive favorable tax treatment. The requirement of a trust
does not apply to amounts under a Plan of a tax-exempt
(non-governmental) employer. In addition, the requirement of a trust
does not apply to amounts under a Plan of a governmental employer if
the Plan is not an eligible plan within the meaning of section 457(b)
of the Code. In the absence of such a trust, amounts under the plan
will be subject to the claims of the employer's general creditor's.
In general, distributions from a Plan are prohibited under section 457
of the Code unless made after the participation employee:
o attains age 70 1/2,
o separates from service,
o dies, or
o suffers an unforeseeable financial emergency as defined in the
Code.
Under present federal tax law, amounts accumulated in a Plan under
section 457 of the Code cannot be transferred or rolled over on a
tax-deferred basis except for certain transfers to other Plans under
section 457.
INCOME PAYMENTS; NET INVESTMENT FACTOR
See "Income Payments (The Income Phase)" in the Prospectus.
The net investment factor is an index applied to measure the net investment
performance of an investment division from one business day to the next. Since
the net investment factor may be greater or less than or equal to one, and the
factor that offsets the3% investment rate assumed is slightly less than one, the
value of an annuity unit (which changes with the product of that factor) and the
net investment may increase, decrease or remain the same.
The net investment factor for any investment division for any business day is
determined by dividing (a) by (b) and then subtracting (c) from the result
where:
(a) is the net result of:
(1) the net asset value of a series share held in the
investment division determined as of the end of the
business day, plus
(2) the per share amount of any dividend or other
distribution declared by the series if the
"ex-dividend" date occurs on the business day, plus
or minus
(3) a per share credit or charge with respect to any
taxes paid or reserved for by Jackson National which
are determined by Jackson National to be attributable
to the operation of the investment division (no
federal income taxes are applicable under present
law);
(b) is the net asset value of the series share held in the
investment division determined as of the end of the preceding
business day; and
(c) is the contract insurance charges, optional enhanced death
benefit charge and any other charge or fee as applicable.
<PAGE>
FINANCIAL STATEMENTS
JACKSON NATIONAL SEPARATE ACCOUNT V
There are no financial statements of the Separate Account because the Separate
Account had not commenced operations as of December 31, 1999.
<PAGE>
JACKSON NATIONAL LIFE INSURANCE COMPANY
AND SUBSIDIARIES
[GRAPHIC OMITTED]
CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1999
<PAGE>
REPORT OF INDEPENDENT ACCOUNTANTS
To the Board of Directors and Stockholder of
Jackson National Life Insurance Company
We have audited the accompanying consolidated balance sheet of Jackson National
Life Insurance Company as of December 31, 1999 and the related consolidated
statements of income, stockholder's equity and comprehensive income, and cash
flows for the year then ended. These consolidated financial statements are the
responsibility of the Company's management. Our responsibility is to express an
opinion on these consolidated financial statements based on our audit. The
accompanying consolidated statements of Jackson National Life Insurance Company
as of December 31, 1998, were audited by other auditors whose report thereon
dated February 5, 1999, expressed an unqualified opinion on those statements.
We conducted our audit in accordance with generally accepted auditing standards.
Those standards require that we plan and perform the audit to obtain reasonable
assurance about whether the financial statements are free of material
misstatement. An audit includes examining on a test basis evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audit provides a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above present
fairly, in all material respects, the financial position of Jackson National
Life Insurance Company as of December 31, 1999, and the results of its
operations and its cash flows for the year then ended in conformity with
generally accepted accounting principles.
As discussed more fully in note 2 to the financial statements, effective January
1, 1999, Jackson National Life Insurance Company adopted Statement of Position
97-3, "Accounting by Insurance Companies and Other Enterprises for Insurance
Related Assessments."
February 2, 2000
<PAGE>
JACKSON NATIONAL LIFE INSURANCE COMPANY AND SUBSIDIARIES
CONSOLIDATED FINANCIAL STATEMENTS
CONSOLIDATED BALANCE SHEET
(IN THOUSANDS)
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------------------------------------------------
DECEMBER 31,
-------------------------------------
1999 1998
------------------ -----------------
<S> <C> <C>
ASSETS
Investments:
Cash and short-term investments ................................. $ 2,162,340 $ 2,487,418
Investments available for sale, at market value:
Fixed maturities (amortized cost: 1999, $27,325,447; 1998,
$26,615,730) ................................................ 26,233,916 27,304,968
Equities (cost: 1999, $443,781; 1998, $247,307) .............. 497,096 319,831
Mortgage loans, net of allowance ................................ 3,421,720 2,465,807
Policy loans .................................................... 675,643 652,628
Other invested assets ........................................... 861,981 415,493
------------------ -----------------
Total investments ........................................... 33,852,696 33,646,145
Accrued investment income ......................................... 445,241 427,297
Deferred acquisition costs ........................................ 2,000,305 1,311,314
Reinsurance recoverable ........................................... 328,010 256,189
Deferred income taxes ............................................. 298,215 -
Value of acquired insurance in force .............................. 138,734 154,402
Other assets ...................................................... 162,540 91,750
Variable annuity assets ........................................... 4,522,188 1,951,659
================== =================
Total assets ................................................ $ 41,747,929 $ 37,838,756
================== =================
LIABILITIES AND STOCKHOLDER'S EQUITY
LIABILITIES
Policy reserves and liabilities:
Reserves for future policy benefits ........................... $ 669,275 $ 650,305
Deposits on investment contracts .............................. 25,339,544 25,135,640
Guaranteed investment contracts ............................... 4,658,339 4,566,859
Other policyholder funds ...................................... 11,147 12,262
Claims payable ................................................ 221,288 168,278
Trust instruments supported by funding agreements ............... 997,973 -
Reverse repurchase agreements ................................... 1,439,334 922,121
Securities lending payable ...................................... 288,000 425,000
Surplus note payable ............................................ 249,184 249,176
Income taxes payable to Parent .................................. 179,123 178,236
Liability for guaranty fund assessments ......................... 80,225 66,846
Deferred income taxes ........................................... - 23,122
Other liabilities ............................................... 631,451 607,250
Variable annuity liabilities .................................... 4,522,188 1,951,659
------------------ -----------------
Total liabilities ........................................... 39,287,071 34,956,754
------------------ -----------------
STOCKHOLDER'S EQUITY
Capital stock, $1.15 par value; authorized 50,000 shares;
issued and outstanding 12,000 shares .......................... 13,800 13,800
Additional paid-in capital ...................................... 1,360,982 1,360,982
Accumulated other comprehensive income
net of tax of $(250,835) in 1999 and $175,147 in 1998 ........ (465,836) 325,273
Retained earnings ............................................... 1,551,912 1,181,947
------------------ -----------------
Total stockholder's equity ...................................... 2,460,858 2,882,002
================== =================
Total liabilities and stockholder's equity .................. $ 41,747,929 $ 37,838,756
================== =================
</TABLE>
See accompanying notes to consolidated financial statements.
<PAGE>
JACKSON NATIONAL LIFE INSURANCE COMPANY AND SUBSIDIARIES
CONSOLIDATED FINANCIAL STATEMENTS
CONSOLIDATED INCOME STATEMENT
(IN THOUSANDS)
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------------------------------------------------
YEARS ENDED DECEMBER 31,
1999 1998 1997
----------------- ----------------- ------------------
<S> <C> <C> <C>
REVENUES
Premiums and other considerations .................. $ 258,311 $ 263,686 $ 275,851
Net investment income .............................. 2,476,196 2,478,277 2,333,509
Net realized investment gains ...................... 44,318 69,446 80,335
Fee income:
Mortality charges ................................ 134,744 136,040 136,285
Surrender charges ................................ 72,601 76,878 66,638
Expense charges .................................. 17,481 19,217 20,175
Variable annuity fees ............................ 41,521 21,411 10,202
Net asset management fees ........................ 13,118 7,044 5,219
Net retained commissions ......................... - 396 443
----------------- ----------------- ------------------
Total fee income ................................... 279,465 260,986 238,962
Other income ....................................... 37,286 32,974 31,251
----------------- ----------------- ------------------
Total revenues ................................... 3,095,576 3,105,369 2,959,908
----------------- ----------------- ------------------
BENEFITS AND EXPENSES
Death benefits ..................................... 273,400 274,219 279,014
Interest credited on deposit liabilities ........... 1,637,478 1,664,133 1,586,249
Interest expense on surplus notes and reverse
repurchase agreements ........................... 73,991 121,035 107,738
Interest expense on trust instruments supported
by funding agreements ........................... 28,480 - -
Decrease in reserves, net of reinsurance
recoverables .................................... (32,199) (20,712) (23,292)
Other policyholder benefits ........................ 15,820 10,534 16,170
Commissions ........................................ 312,213 208,177 274,906
General and administrative expenses ................ 206,121 169,274 169,473
Taxes, licenses and fees ........................... 8,872 14,152 21,852
Deferral of policy acquisition costs ............... (360,205) (251,166) (320,246)
Amortization of acquisition costs:
Attributable to operations ....................... 210,248 194,045 191,425
Attributable to net realized investment gains .... 15,798 24,096 24,687
Amortization of insurance in force ................. 15,668 14,843 14,039
----------------- ----------------- ------------------
Total benefits and expenses ...................... 2,405,685 2,422,630 2,342,015
----------------- ----------------- ------------------
Pretax income .................................... 689,891 682,739 617,893
Federal income tax expense ......................... 241,500 239,000 216,300
----------------- ----------------- ------------------
Income before cumulative effect of change in
accounting principle ........................... 448,391 443,739 401,593
Cumulative effect of change in accounting principle 17,884 - -
================= ================= ==================
NET INCOME ....................................... $ 466,275 $ 443,739 $ 401,593
================= ================= ==================
Pro forma net income assuming the change in
accounting principle is applied retroactively ..... $ 448,391 $ 437,811 $ 397,571
================= ================= ==================
</TABLE>
See accompanying notes to consolidated financial statements.
<PAGE>
JACKSON NATIONAL LIFE INSURANCE COMPANY AND SUBSIDIARIES
CONSOLIDATED FINANCIAL STATEMENTS
CONSOLIDATED STATEMENT OF STOCKHOLDER'S EQUITY AND COMPREHENSIVE INCOME
(IN THOUSANDS)
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------------------------------
YEARS ENDED DECEMBER 31,
1999 1998 1997
------------------- ------------------- -------------------
<S> <C> <C> <C>
COMMON STOCK, beginning and end of year ......................... $ 13,800 $ 13,800 $ 13,800
------------------- ------------------- -------------------
ADDITIONAL PAID-IN CAPITAL
Beginning of year ............................................... 1,360,982 832,982 648,982
Capital contributions ....................................... - 528,000 184,000
------------------- ------------------- -------------------
End of year ..................................................... 1,360,982 1,360,982 832,982
------------------- ------------------- -------------------
ACCUMULATED OTHER COMPREHENSIVE INCOME (LOSS)
Beginning of year ............................................... 325,273 440,537 180,432
Net unrealized investment (losses) gains, net
of reclassification adjustment and net of
tax of $(425,982) in 1999, $(62,065) in
1998, and $140,057 in 1997 ............................... (791,109) (115,264) 260,105
------------------- ------------------- -------------------
End of year ..................................................... (465,836) 325,273 440,537
------------------- ------------------- -------------------
RETAINED EARNINGS
Beginning of year ............................................... 1,181,947 1,327,830 1,170,737
Net income .................................................. 466,275 443,739 401,593
Dividends paid to stockholder ............................... (96,310) (589,622) (244,500)
------------------- ------------------- -------------------
End of year ..................................................... 1,551,912 1,181,947 1,327,830
------------------- ------------------- -------------------
TOTAL STOCKHOLDER'S EQUITY ...................................... $ 2,460,858 $ 2,882,002 $ 2,615,149
=================== =================== ===================
</TABLE>
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
1999 1998 1997
------------------- ------------------- ------------------
COMPREHENSIVE INCOME (LOSS)
<S> <C> <C> <C> <C>
Net income ...................................................... $ 466,275 $ 443,739 4 401,593
Net unrealized holding gains (losses) arising during
the period, net of tax of $(398,646) in 1999,
$(41,366) in 1998 and $148,906 in 1997 ................... (740,343) (76,823) 276,539
Reclassification adjustment for gains included in
net income, net of tax of $(27,336) in 1999,
$(20,699) in 1998 and $(8,849) in 1997 ................... (50,766) (38,441) (16,434)
=================== =================== ==================
COMPREHENSIVE INCOME (LOSS) ..................................... $ (324,834) $ 328,475 $ 661,698
=================== =================== ==================
</TABLE>
See accompanying notes to consolidated financial statements.
<PAGE>
JACKSON NATIONAL LIFE INSURANCE COMPANY AND SUBSIDIARIES
CONSOLIDATED FINANCIAL STATEMENTS
CONSOLIDATED STATEMENT OF CASH FLOWS
(IN THOUSANDS)
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------------------------------
YEARS ENDED DECEMBER 31,
1999 1998 1997
---------------- ---------------- -----------------
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income ....................................................... $ 466,275 $ 443,739 $ 401,593
Adjustments to reconcile net income to net cash
provided by operating activities:
Net realized investment gains ................................ (44,318) (69,446) (80,335)
Interest credited on deposit liabilities ..................... 1,637,478 1,664,133 1,586,249
Interest expense on trust instruments supported
by funding agreements ...................................... 28,480 - -
Other charges ................................................ (224,826) (253,546) (233,300)
Amortization of discount and premium on
Investments ................................................ (69,919) (104,586) (18,437)
Deferred income tax provision ................................ 104,600 42,100 34,500
Change in:
Accrued investment income ............................... (17,944) (40,885) (48,313)
Deferred acquisition costs .............................. (123,659) (33,025) (104,134)
Value of acquired insurance in force .................... 15,668 14,843 14,039
Income taxes payable to Parent .......................... 887 34,941 2,931
Other assets and liabilities, net ....................... 85,808 (98,924) 659,413
---------------- ---------------- -----------------
NET CASH PROVIDED BY OPERATING ACTIVITIES ........................ 1,858,530 1,599,344 2,214,206
---------------- ---------------- -----------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Sales of fixed maturities and equities available for sale ........ 5,374,124 6,923,936 9,078,616
Principal repayments, maturities, calls and redemptions:
Fixed maturities and equities available for sale ............. 2,426,270 1,020,281 960,844
Mortgage loans ............................................... 113,545 127,201 47,282
Purchases of:
Fixed maturities and equities available for sale ............. (8,677,736) (8,847,509) (11,588,708)
Mortgage loans ............................................ (1,071,678) (1,008,131) (801,008)
Other investing activities ....................................... 15,873 (769,833) 1,332,795
---------------- ---------------- -----------------
NET CASH USED BY INVESTING ACTIVITIES .......................... (1,819,602) (2,554,055) (970,179)
---------------- ---------------- -----------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Policyholders account balances:
Deposits ..................................................... 7,211,159 5,185,920 5,244,103
Withdrawals .................................................. (5,723,094) (4,306,150) (3,599,724)
Net transfers to separate accounts ............................... (1,755,761) (509,182) (604,152)
Surplus note payable ............................................. - - 249,163
Payment of cash dividends to Parent .............................. (96,310) (589,622) (244,500)
Capital contribution from Parent ................................. - 528,000 184,000
---------------- ---------------- -----------------
NET CASH (USED) PROVIDED BY FINANCING ACTIVITIES ................. (364,006) 308,966 1,228,890
---------------- ---------------- -----------------
NET (DECREASE) INCREASE IN CASH AND SHORT-TERM
INVESTMENTS ................................................ (325,078) (645,745) 2,472,917
CASH AND SHORT-TERM INVESTMENTS, BEGINNING OF PERIOD .................. 2,487,418 3,133,163 660,246
---------------- ---------------- -----------------
CASH AND SHORT-TERM INVESTMENTS, END OF PERIOD ........................ $ 2,162,340 $ 2,487,418 $ 3,133,163
================ ================ =================
</TABLE>
See accompanying notes to consolidated financial statements.
<PAGE>
JACKSON NATIONAL LIFE INSURANCE COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1999
- --------------------------------------------------------------------------------
1. NATURE OF OPERATIONS
Jackson National Life Insurance Company (the "Company" or "JNL") is wholly
owned by Brooke Life Insurance Company ("Brooke Life" or the "Parent")
which is ultimately a wholly owned subsidiary of Prudential plc
("Prudential"), London, England. JNL is licensed to sell group and
individual annuity products, including immediate and deferred annuities,
variable annuities, guaranteed investment contracts ("GICs"), and
individual life insurance products in 49 states and the District of
Columbia.
The accompanying consolidated financial statements include JNL and its
wholly owned subsidiaries, Jackson National Life Insurance Company of New
York, an insurance company; Chrissy Corporation, an advertising agency;
Jackson National Financial Services, LLC, an investment advisor and
transfer agent; Jackson National Life Distributors, Inc., a broker dealer
and JNL Thrift Holdings, Inc., a unitary thrift holding company.
On November 10, 1998, JNL Thrift Holdings, Inc. completed its acquisition
of First Federal Savings and Loan Association of San Bernardino, a thrift
located in San Bernardino, California. Following the acquisition, the
thrift was renamed Jackson Federal Bank ("Jackson Federal"). The purchase
price amounted to $6.5 million. Additional capital contributions of $3.5
million and $4.2 million were made by the Company in 1999 and 1998,
respectively. Jackson Federal had total assets of $110.0 million and
deposits of $105.8 million at the date of the acquisition. The $3.8 million
excess of the purchase price over the fair value of assets acquired was
allocated to goodwill and core deposits. The core deposits are amortized
over 7 years and goodwill is amortized over 15 years. The acquisition was
accounted for by the purchase method and the results of Jackson Federal are
included in the consolidated income statement from the date of acquisition.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
BASIS OF PRESENTATION
The accompanying consolidated financial statements have been prepared in
accordance with generally accepted accounting principles ("GAAP"). All
significant intercompany accounts and transactions have been eliminated in
consolidation. Certain prior year amounts have been reclassified to conform
with the current year presentation.
The preparation of the financial statements in conformity with generally
accepted accounting principles requires the use of estimates and
assumptions that affect the amounts reported in the financial statements
and the accompanying notes. Actual results may differ from those estimates.
CHANGE IN ACCOUNTING PRINCIPLES
Effective January 1, 1999, JNL adopted Statement of Position 97-3,
"Accounting by Insurance Companies and Other Enterprises for
Insurance-Related Assessments" ("SOP 97-3"). SOP 97-3 establishes
accounting standards for guaranty fund and other insurance related
assessments. Under SOP 97-3, the Company establishes an asset for premium
tax offsets and policy surcharges at the time of the assessment if certain
circumstances exist. Previously, no asset was recorded for premium tax
offsets. The adoption of SOP 97-3 is treated as a cumulative effect of a
change in accounting principle and prior periods have not been restated.
The cumulative effect of the change totaling $38.0 million, net of deferred
acquisition cost amortization of $10.5 million and federal income taxes of
$9.6 million is included in net income in 1999.
Effective January 1, 1999, JNL adopted Statement of Position 98-1,
"Accounting for the Costs of Computer Software Developed or Obtained for
Internal Use." The impact of adoption was not material.
<PAGE>
JACKSON NATIONAL LIFE INSURANCE COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1999
- --------------------------------------------------------------------------------
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
COMPREHENSIVE INCOME
Effective January 1, 1998, JNL adopted Statement of Financial Accounting
Standards No. 130, Reporting Comprehensive Income ("SFAS 130"). SFAS 130
establishes standards for reporting and presentation of comprehensive
income and its components in the financial statements. Comprehensive income
includes all changes in stockholder's equity (except those arising from
transactions with owners/shareholders) and, in the Company's case, includes
net income and net unrealized gains/(losses) on securities. SFAS 130
requires additional disclosures in the financial statements, but it has no
impact on the Company's financial position or net income.
INVESTMENTS
Cash and short-term investments which primarily include cash, commercial
paper, and money market instruments are carried at cost, which approximates
fair value. These investments have maturities of three months or less and
are considered cash equivalents for reporting cash flows.
Fixed maturities consist of debt securities and commercial loans. Debt
securities include bonds, notes, redeemable preferred stocks,
mortgage-backed securities and structured securities. All debt securities
are considered available for sale and are carried at aggregate fair value.
Debt securities are reduced to estimated net realizable value for declines
in fair value considered to be other than temporary. Commercial loans
include certain term and revolving notes as well as certain receivables
arising from asset based lending activities. Commercial loans are carried
at outstanding principal balances, less an allowance for loan losses.
Equity securities which include common stocks and non-redeemable preferred
stocks are carried at fair value.
Mortgage loans are carried at aggregate unpaid principal balances, net of
unamortized discounts and premiums and an allowance for loan losses. The
allowance for loan losses is maintained at a level considered adequate to
absorb losses inherent in the mortgage loan portfolio.
Policy loans are carried at the unpaid principal balances.
Real estate is carried at the lower of depreciated cost or fair value.
Limited partnership investments are accounted for using the equity method.
Realized gains and losses on the sale of investments are recognized in
income at the date of sale and are determined using the specific cost
identification method. Acquisition premiums and discounts on investments
are amortized to investment income using call or maturity dates. The
changes in unrealized gains or losses on investments classified as
available for sale, net of tax and the effect of the deferred acquisition
costs adjustment, are excluded from net income and included as a component
of comprehensive income and stockholder's equity.
DERIVATIVE FINANCIAL INSTRUMENTS
The Company enters into financial derivative transactions, including swaps,
put-swaptions, futures and options to reduce and manage business risks.
These transactions manage the risk of a change in the value, yield, price,
cash flows, or quantity of, or a degree of exposure with respect to assets,
liabilities, or future cash flows, which the Company has acquired or
incurred. Hedge accounting practices are supported by cash flow matching,
duration matching and scenario testing.
<PAGE>
JACKSON NATIONAL LIFE INSURANCE COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1999
- --------------------------------------------------------------------------------
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
Interest rate swap agreements generally involve the exchange of fixed and
floating payments over the life of the agreement without an exchange of the
underlying principal amount. Interest rate swap agreements outstanding at
December 31, 1999 and 1998 hedge available for sale securities and are
carried at fair value with the change in value reflected in comprehensive
income and stockholder's equity. Amounts paid or received on interest rate
swap agreements are included in investment income. Accrued amounts payable
to or receivable from counterparties are included in other liabilities or
other assets. Realized gains and losses from the settlement or termination
of the interest rate swaps are deferred and amortized over the life of the
specific hedged assets as an adjustment to the yield.
Index swap agreements generally involve the exchange of payments based on a
short-term interest rate index for payments based on the total return of a
bond or equity index over the life of the agreement without an exchange of
the underlying principal amount. Index swap agreements outstanding at
December 31, 1998 hedged the anticipated purchase of investment grade
available for sale bonds and are carried at fair value. Fair value and
amounts paid or received on the swaps are deferred and will adjust the
basis of bonds acquired upon expiration of the swaps.
Put-swaptions purchased provide the Company with the right, but not the
obligation, to require the writers to pay the Company the present value of
a long duration interest rate swap at future exercise dates. These
put-swaptions are entered into as a hedge against significant upward
movements in interest rates. Premiums paid for put-swaption contracts are
included in other invested assets and are being amortized to investment
income over the remaining terms of the contracts with maturities of up to
10 years. Put-swaptions, designated as a hedge of available for sale
securities, are carried at fair value with the change in value reflected in
comprehensive income and stockholder's equity.
Equity index futures contracts and equity index call options are used to
hedge the Company's obligations associated with its issuance of equity
index-linked immediate and deferred annuities. The variation margin on
futures contracts is deferred and, upon closing of the contracts, adjusts
the basis of option contracts purchased. Premiums paid for call options,
adjusted for the effects of hedging, are included in net investment income
ratably over the terms of the options. The call option contracts are
included in other invested assets and are carried at intrinsic value.
Cross-currency swaps, which embody spot and forward currency swaps and
additionally, in some cases, interest rate swaps, are entered into for the
purpose of hedging the Company's foreign currency denominated Trust
instrument obligations. Cross-currency swaps are included in other assets
at cost adjusted for transaction gains or losses using exchange rates as of
the reporting date. Unrealized foreign currency transaction gains and
losses related to hedging activities are excluded from net income.
Derivative financial instruments are held primarily for hedging purposes.
High yield bond index swaps and equity index swaps were held for investment
purposes in 1998 and 1997. Emerging market bond index swaps and equity
index futures were also held for investment purposes in 1998.
The Company manages the potential credit exposure for over-the-counter
derivative contracts through careful evaluation of the counterparty credit
standing, collateral agreements, and master netting agreements. The Company
is exposed to credit-related losses in the event of nonperformance by
counterparties, however, it does not anticipate nonperformance.
<PAGE>
JACKSON NATIONAL LIFE INSURANCE COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1999
- --------------------------------------------------------------------------------
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
DEFERRED ACQUISITION COSTS
Certain costs of acquiring new business, principally commissions and
certain costs associated with policy issue and underwriting which vary with
and are primarily related to the production of new business, have been
capitalized as deferred acquisition costs. Deferred acquisition costs are
increased by interest thereon and amortized in proportion to anticipated
premium revenues for traditional life policies and in proportion to
estimated gross profits for annuities and interest-sensitive life products.
As certain fixed maturities and equity securities available for sale are
carried at aggregate fair value, an adjustment is made to deferred
acquisition costs equal to the change in amortization that would have
occurred if such securities had been sold at their stated aggregate fair
value and the proceeds reinvested at current yields. The change in this
adjustment is included with the change in fair value of fixed maturities
and equity securities available for sale, net of tax, that is credited or
charged directly to stockholder's equity and is a component of other
comprehensive income. Deferred acquisition costs have been increased by
$320.0 million at December 31, 1999 and decreased by $245.3 million at
December 31, 1998 to reflect this change.
VALUE OF ACQUIRED INSURANCE IN-FORCE
The value of acquired insurance in-force at acquisition date represents the
present value of anticipated profits of the business in-force on November
25, 1986 (the date the Company was acquired by Prudential) net of
amortization. The value of acquired insurance in-force is amortized in
proportion to anticipated premium revenues for traditional life insurance
contracts and estimated gross profits for annuities and interest-sensitive
life products over a period of 20 years.
FEDERAL INCOME TAXES
The Company provides deferred income taxes on the temporary differences
between the tax and financial statement basis of assets and liabilities.
JNL files a consolidated federal income tax return with Brooke Life and
Jackson National Life Insurance Company of New York. In years prior to
1998, JNL filed a consolidated federal income tax return with Brooke Life
only. The non-life insurance company subsidiaries file separate federal
income tax returns.
Income tax expense is calculated on a separate company basis.
POLICY RESERVES AND LIABILITIES
RESERVES FOR FUTURE POLICY BENEFITS:
For traditional life insurance contracts, reserves for future policy
benefits are determined using the net level premium method and assumptions
as of the issue date as to mortality, interest, policy lapsation and
expenses plus provisions for adverse deviations. Mortality assumptions
range from 50% to 90% of the 1975-1980 Basic Select and Ultimate tables
depending on underwriting classification and policy duration. Interest rate
assumptions range from 6.0% to 9.5%. Lapse and expense assumptions are
based on Company experience.
DEPOSITS ON INVESTMENT CONTRACTS:
For the Company's interest-sensitive life contracts, reserves approximate
the policyholder's accumulation account. For deferred annuity, variable
annuity, guaranteed investment contracts and other investment contracts,
the reserve is the policyholder's account value. The reserve for equity
index-linked annuities is based on two components, i) the guaranteed
contract value, and ii) the intrinsic value of the option component of the
contract as of the valuation date. Obligations in excess of the guaranteed
contract value are hedged through the use of futures contracts and call
options.
<PAGE>
JACKSON NATIONAL LIFE INSURANCE COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1999
- --------------------------------------------------------------------------------
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
TRUST INSTRUMENTS SUPPORTED BY FUNDING AGREEMENTS
In 1999, JNL and Jackson National Life Funding, LLC established an initial
$2 billion aggregate European Medium Term Note program. Jackson National
Life Funding, LLC was formed as a special purpose vehicle solely for the
purposes of issuing instruments to institutional investors, the proceeds of
which are deposited with JNL and secured by the issuance of Funding
Agreements. Instruments issued representing obligations denominated in a
foreign currency have been hedged for changes in exchange rates using
cross-currency swaps. Trust instrument liabilities reported are adjusted to
reflect the effects of foreign currency transaction gains and losses using
exchange rates as of the reporting date. Unrealized foreign currency
transaction gains and losses are excluded from net income.
VARIABLE ANNUITY ASSETS AND LIABILITIES
The assets and liabilities resulting from individual variable annuity
contracts which aggregated $4,461.2 million and $1,908.1 million at
December 31, 1999 and 1998, respectively, are segregated in separate
accounts. The Company receives administrative fees for managing the funds
and other fees for assuming mortality and certain expense risks. Such fees
are recorded as earned and included in variable annuity fees and net asset
management fees in the consolidated income statement.
The Company has issued a group variable annuity contract designed for use
in connection with and issued to the Company's Defined Contribution
Retirement Plan. These deposits are allocated to the Jackson National
Separate Account - II and aggregated $61.0 million and $43.6 million at
December 31, 1999 and 1998, respectively. The Company receives
administrative fees for managing the funds and these fees are recorded as
earned and included in net asset management fees in the consolidated income
statement.
REVENUE AND EXPENSE RECOGNITION
Premiums for traditional life insurance are reported as revenues when due.
Benefits, claims and expenses are associated with earned revenues in order
to recognize profit over the lives of the contracts. This association is
accomplished by provisions for future policy benefits and the deferral and
amortization of acquisition costs.
Deposits on interest-sensitive life products and investment contracts,
principally deferred annuities and guaranteed investment contracts, are
treated as policyholder deposits and excluded from revenue. Revenues
consist primarily of the investment income and charges assessed against the
policyholder's account value for mortality charges, surrenders and
administrative expenses. Fee income also includes revenues related to asset
management fees and net retained commissions. Surrender benefits are
treated as repayments of the policyholder account. Annuity benefit payments
are treated as reductions to the policyholder account. Death benefits in
excess of the policyholder account are recognized as an expense when
incurred. Expenses consist primarily of the interest credited to
policyholder deposits. Underwriting expenses are associated with gross
profit in order to recognize profit over the life of the business. This is
accomplished by deferral and amortization of acquisition costs.
3. FAIR VALUE OF FINANCIAL INSTRUMENTS
The following summarizes the basis used by the Company in estimating its
fair value disclosures for financial instruments:
CASH AND SHORT-TERM INVESTMENTS:
Carrying value is considered to be a reasonable estimate of fair value.
FIXED MATURITIES:
Fair values for debt securities are based principally on quoted market
prices, if available. For securities that are not actively traded, fair
values are estimated using independent pricing services or analytically
determined values. For commercial loans, carrying value approximates fair
value.
<PAGE>
JACKSON NATIONAL LIFE INSURANCE COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1999
- --------------------------------------------------------------------------------
3. FAIR VALUE OF FINANCIAL INSTRUMENTS (CONTINUED)
EQUITY SECURITIES:
Fair values for common and non-redeemable preferred stock are based
principally on quoted market prices, if available. For securities that are
not actively traded, fair values are estimated using independent pricing
services or analytically determined values.
MORTGAGE LOANS:
Fair values are determined by discounting the future cash flows to the
present at current market rates. The fair value of mortgages approximated
$3,400.3 million and $2,682.7 million at December 31, 1999 and 1998,
respectively.
POLICY LOANS:
Fair value approximates carrying value since policy loan balances reduce
the amount payable at death or surrender of the contract.
DERIVATIVES:
Fair values are based on quoted market prices, estimates received from
financial institutions, or valuation pricing models.
VARIABLE ANNUITY ASSETS:
Variable annuity assets are carried at the market value of the underlying
securities.
ANNUITY RESERVES:
Fair values for immediate annuities, without mortality features, are
derived by discounting the future estimated cash flows using current
interest rates with similar maturities. For deferred annuities, fair value
is based on surrender value. The carrying value and fair value of such
annuities approximated $20.2 billion and $19.2 billion, respectively, at
December 31, 1999, and $20.0 billion and $19.1 billion, respectively, at
December 31, 1998.
RESERVES FOR GUARANTEED INVESTMENT CONTRACTS:
Fair value is based on the present value of future cash flows at current
pricing rates. The fair value approximated $4.7 billion, at December 31,
1999, and $4.6 billion at December 31, 1998.
TRUST INSTRUMENTS SUPPORTED BY FUNDING AGREEMENTS:
Fair value is based on the present value of future cash flows at current
pricing rates. The fair value approximated $1.0 billion at December 31,
1999.
VARIABLE ANNUITY LIABILITIES:
Fair value of contracts in the accumulation phase is based on account value
less surrender charges. Fair values of contracts in the payout phase are
based on the present value of future cash flows at assumed investment
rates. The fair value approximated $4,336.8 million and $1,861.7 million at
December 31, 1999 and 1998, respectively.
INDEBTEDNESS:
Fair value is based on the present value of future cash flows at current
interest rates. The fair value of surplus notes approximated $248.8 million
and $288.9 million at December 31, 1999 and 1998, respectively. The
carrying value of reverse repurchase agreements approximates fair value.
<PAGE>
JACKSON NATIONAL LIFE INSURANCE COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1999
- --------------------------------------------------------------------------------
4. INVESTMENTS
Investments are comprised primarily of fixed-income securities, primarily
publicly-traded industrial, mortgage-backed, utility and government bonds,
and mortgage and commercial loans. The Company generates the majority of
its deposits from interest-sensitive individual annuity contracts, life
insurance products, and guaranteed investment contracts on which it has
committed to pay a declared rate of interest. The Company's strategy of
investing in fixed-income securities and loans aims to ensure matching of
the asset yield with the interest-sensitive liabilities and to earn a
stable return on its investments.
FIXED MATURITIES
The following table sets forth fixed maturity investments at December 31,
1999, classified by rating categories as assigned by nationally recognized
statistical rating organizations, the National Association of Insurance
Commissioners ("NAIC"), or if not rated by such organizations, the
Company's investment advisor. At December 31, 1999, investments rated by
the Company's investment advisor totaled $579.7 million. For purposes of
the table, if not otherwise rated higher by a nationally recognized
statistical rating organization, NAIC Class 1 investments are included in
the A rating; Class 2 in BBB; Class 3 in BB and Classes 4 through 6 in B
and below.
PERCENT OF TOTAL
INVESTMENT RATING ASSETS
-------------------
AAA ................................... 15.3%
AA .................................... 2.6
A ..................................... 16.3
BBB ................................... 22.1
-------------------
Investment grade .................. 56.3
-------------------
BB .................................... 4.5
B and below ........................... 2.1
-------------------
Below investment grade ............ 6.6
-------------------
Total fixed maturities ............ 62.9
-------------------
Other assets .......................... 37.1
===================
Total assets ...................... 100.0%
===================
The amortized cost and estimated fair value of fixed maturities are as
follows (in thousands):
<TABLE>
<CAPTION>
GROSS GROSS ESTIMATED
AMORTIZED UNREALIZED UNREALIZED FAIR
DECEMBER 31, 1999 COST GAINS LOSSES VALUE
-------------------- ------------------ ------------------- -------------------
<S> <C> <C> <C> <C>
U.S. Treasury securities ................... $ 9,974 $ 17 $ 380 $ 9,611
U.S. Government agencies
and foreign governments ............... 282,938 13,276 2,559 293,655
Public utilities ........................... 547,355 5,419 25,850 526,924
Corporate securities
and commercial loans .................. 15,304,146 126,822 787,942 14,643,026
Mortgage-backed securities ................. 11,181,034 22,677 443,011 10,760,700
-------------------- ------------------ ------------------- -------------------
Total ................................. $ 27,325,447 $ 168,211 $ 1,259,742 $ 26,233,916
==================== ================== =================== ===================
</TABLE>
<PAGE>
JACKSON NATIONAL LIFE INSURANCE COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1999
- --------------------------------------------------------------------------------
4. INVESTMENTS (CONTINUED)
<TABLE>
<CAPTION>
GROSS GROSS ESTIMATED
AMORTIZED UNREALIZED UNREALIZED FAIR
DECEMBER 31, 1998 COST GAINS LOSSES VALUE
-------------------- ------------------ ------------------- --------------------
<S> <C> <C> <C> <C>
U.S. Treasury securities ................... $ 11,372 $ 276 $ 19 $ 11,629
U.S. Government agencies
and foreign governments ................ 210,907 19,512 4,188 226,231
Public utilities ........................... 512,375 25,274 23 537,626
Corporate securities
and commercial loans ................. 13,929,370 671,454 220,363 14,380,461
Mortgage-backed securities ................. 11,951,706 265,076 67,761 12,149,021
-------------------- ------------------ ------------------- --------------------
Total ................................. $ 26,615,730 $ 981,592 $ 292,354 $ 27,304,968
==================== ================== =================== ====================
</TABLE>
Gross unrealized gains pertaining to equity securities at December 31, 1999
and 1998 were $83.3 million and $94.3 million, respectively. Gross
unrealized losses at December 31, 1999 and 1998 were $30.0 million and
$21.8 million, respectively.
The amortized cost and estimated fair value of fixed maturities at December
31, 1999, by contractual maturity, are shown below. Expected maturities
will differ from contractual maturities because borrowers may have the
right to call or prepay obligations with or without early redemption
penalties.
Fixed maturities (in thousands):
<TABLE>
<CAPTION>
AMORTIZED ESTIMATED
COST FAIR VALUE
-------------------- ----------------------
<S> <C> <C>
Due in 1 year or less ...................................... $ 165,931 $ 164,796
Due after 1 year through 5 years ........................... 3,308,798 3,298,580
Due after 5 years through 10 years ......................... 7,309,646 6,944,198
Due after 10 years through 20 years ........................ 2,334,373 2,200,878
Due after 20 years ......................................... 3,025,665 2,864,764
Mortgage-backed securities ................................. 11,181,034 10,760,700
==================== ======================
Total ................................................. $ 27,325,447 $ 26,233,916
==================== ======================
</TABLE>
Acquisition discounts and premiums on collateralized mortgage obligations
are amortized over the estimated redemption period using the effective
interest method. Effective yields, which are used to calculate
premium/discount amortization, are adjusted periodically to reflect actual
payments to date and anticipated future payments. Resulting adjustments to
carrying values are included in investment income.
Fixed maturities with a carrying value of $2.7 million and $6.7 million
were on deposit with regulatory authorities at December 31, 1999 and 1998,
respectively, as required by law in various states in which business is
conducted.
MORTGAGE LOANS
Mortgage loans, net of allowance for loan losses of $15.4 million and $11.5
million at December 31, 1999 and 1998, respectively, are as follows (in
thousands):
DECEMBER 31,
1999 1998
------------------ ----------------
Single Family ................ $ 19 $ 87
Commercial ................... 3,421,701 2,465,720
================== ================
Total ................... $ 3,421,720 $ 2,465,807
================== ================
<PAGE>
JACKSON NATIONAL LIFE INSURANCE COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1999
- --------------------------------------------------------------------------------
4. INVESTMENTS (CONTINUED)
At December 31, 1999, mortgage loans were collateralized by properties
located in 36 states and Canada. Approximately 18% of the aggregate
carrying value of the portfolio is secured by properties located in Texas.
OTHER INVESTED ASSETS
Other invested assets consist primarily of investments in limited
partnerships that invest in securities. Limited partnership income
recognized by the Company was $34.3 million, $10.2 million and $38.9
million in 1999, 1998 and 1997, respectively. At December 31, 1999, the
Company has unfunded commitments related to its investments in limited
partnerships totaling $259.6 million. Effective January 1, 2000, the
Company has an additional commitment of $500.0 million.
DERIVATIVES
The fair value of derivatives reflects the estimated amounts that the
Company would receive or pay upon sale or termination of the contracts, net
of payment accruals, at the reporting date. With respect to swaps and
put-swaptions, the notional amount represents the stated principal balance
used as a basis for calculating payments. With respect to futures and
options, the contractual amount represents the market exposure of
outstanding positions.
A summary of the aggregate contractual or notional amounts, estimated fair
values and gain/(loss) for derivative financial instruments outstanding is
as follows (in thousands):
<TABLE>
<CAPTION>
DECEMBER 31,
1999 1998
--------------------------------------------- -------------------------------------------
CONTRACTUAL/ CONTRACTUAL/
NOTIONAL FAIR GAIN/ NOTIONAL FAIR GAIN/
AMOUNT VALUE (LOSS) AMOUNT VALUE (LOSS)
------------------- ------------ ------------ -----------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Interest rate swaps $ 4,610,000 $ 19,878 $ 19,878 $ 3,300,000 $(57,337) $(57,337)
Index swaps ........ - - - 650,000 - 3,630
Cross-currency
swaps ........... 808,572 (61,472) (61,472) - - -
Put-swaptions ...... 29,500,000 14,792 1,706 34,500,000 2,987 (16,013)
Futures ............ 62,557 - 4,633 48,844 - 3,020
Call options ....... 1,501,075 628,836 339,321 811,691 298,851 169,020
</TABLE>
During 1999 and 1998, the Company recorded net expenses of $29.9 million
and $20.2 million, respectively, on derivative instruments. Income on
derivatives of $35.8 million was recorded in 1997. Included in these
amounts was a loss of $6.1 million in 1998, and income of $36.3 million in
1997 related to investment activity. During 1999 and 1998, the Company also
incurred realized losses of $81.2 thousand on the termination of interest
rate swaps and $10.1 million on the termination of emerging market bond
index swaps, respectively. The average notional amount of swaps outstanding
was $4.6 billion and $4.3 billion in 1999 and 1998, respectively. Included
in the average outstanding amount were high yield and emerging market bond
index swaps and equity index swaps of $231.1 million during 1998. The
average outstanding contractual amount of equity futures held for
investment purposes was $57.6 million during 1998.
<PAGE>
JACKSON NATIONAL LIFE INSURANCE COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1999
- --------------------------------------------------------------------------------
4. INVESTMENTS (CONTINUED)
SECURITIES LENDING
The Company has entered into a securities lending agreement with an agent
bank whereby blocks of securities are loaned to third parties, primarily
major brokerage firms. As of December 31, 1999 and 1998, the estimated fair
value of loaned securities was $313.8 million and $440.2 million,
respectively. The agreement requires a minimum of 102 percent of the fair
value of the loaned securities as collateral, calculated on a daily basis.
To further minimize the credit risks related to this program, the financial
condition of counterparties is monitored on a regular basis. Cash
collateral received in the amount of $288.0 million and $425.0 million at
December 31, 1999 and 1998, respectively, was invested in a pooled fund
managed by the agent bank and included in short-term investments of the
Company. A securities lending payable is included in liabilities for cash
collateral received.
5. INVESTMENT INCOME AND REALIZED GAINS AND LOSSES
The sources of net investment income by major category are as follows (in
thousands):
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
1999 1998 1997
----------------- ------------------ ------------------
<S> <C> <C> <C>
Fixed maturities ........................ $ 2,094,557 $ 2,160,543 $ 2,003,256
Other investment income ................. 420,764 360,846 359,948
----------------- ------------------ ------------------
Total investment income ............... 2,515,321 2,521,389 2,363,204
Less investment expenses ................ (39,125) (43,112) (29,695)
----------------- ------------------ ------------------
Net investment income ................. $ 2,476,196 $ 2,478,277 $ 2,333,509
================= ================== ==================
</TABLE>
Net realized investment gains and losses are as follows (in thousands):
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
1999 1998 1997
----------------- ------------------ ------------------
<S> <C> <C> <C>
Sales of fixed maturities
Gross gains ........................... $ 99,131 $ 120,325 $ 121,916
Gross losses .......................... (28,163) (29,121) (46,009)
Sales of equity securities
Gross gains ........................... 54,849 25,682 50,643
Gross losses .......................... (228) (100) (783)
Impairment losses ....................... (77,076) (31,532) (39,415)
Other invested assets, net .............. (4,195) (15,808) (6,017)
----------------- ------------------ ------------------
Total ................................. $ 44,318 $ 69,446 $ 80,335
================= ================== ==================
</TABLE>
6. VALUE OF ACQUIRED INSURANCE IN-FORCE
The value of acquired insurance in-force was determined by using
assumptions as to interest, persistency and mortality. Profits were then
discounted to arrive at the value of the insurance in-force.
The amortization of acquired insurance in-force was as follows (in
thousands):
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
1999 1998 1997
----------------- ----------------- -----------------
<S> <C> <C> <C>
Balance, beginning of year .................... $ 154,402 $ 169,245 $ 183,284
Interest, at rates varying from 6.5% to 9.5% .. 13,690 15,095 16,419
Amortization ................................. (29,358) (29,938) (30,458)
================= ================= =================
Balance, end of year .......................... $ 138,734 $ 154,402 $ 169,245
================= ================= =================
</TABLE>
<PAGE>
JACKSON NATIONAL LIFE INSURANCE COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1999
- --------------------------------------------------------------------------------
6. VALUE OF ACQUIRED INSURANCE IN-FORCE (CONTINUED)
The value of acquired insurance in-force estimated amortization is as
follows (in thousands):
2000 $ 16,500
2001 17,400
2002 18,500
2003 19,600
2004 20,900
Thereafter 45,834
-----------------
Total $ 138,734
=================
7. INDEBTEDNESS
SURPLUS NOTES
On March 15, 1997, the Company issued 8.15% Notes (the "Notes") in the
principal amount of $250 million due March 15, 2027. The Notes were issued
pursuant to Rule 144A under the Securities Act of 1933, and are unsecured
and subordinated to all present and future indebtedness, policy claims and
other creditor claims.
Under Michigan Insurance law, the Notes are not part of the legal
liabilities of the Company and are considered capital and surplus for
statutory reporting purposes. Payments of interest or principal may only be
made with the prior approval of the Commissioner of Insurance of the State
of Michigan and only out of surplus earnings which the Commissioner
determines to be available for such payments under Michigan Insurance law.
The Notes may not be redeemed at the option of the Company or any holder
prior to maturity.
Interest is payable semi-annually on March 15 and September 15 of each
year. Interest expense on the Notes was $20.8 million in 1999 and 1998, and
$16.3 million in 1997.
REVERSE REPURCHASE AGREEMENTS
During 1999, 1998 and 1997, the Company entered into reverse repurchase and
dollar roll repurchase agreements (in 1998 and 1997 only) whereby the
Company agreed to sell and repurchase securities. These activities have
been accounted for as financing transactions, with the assets and
associated liabilities included in the consolidated balance sheet.
Short-term borrowings under such agreements averaged $987.8 million and
$1.8 billion during 1999 and 1998, respectively, at weighted average
interest rates of 5.39% and 5.49%, respectively. Interest paid totaled
$53.2 million, $100.2 million and $91.4 million in 1999, 1998 and 1997,
respectively. The highest level of short-term borrowings at any month end
was $1.5 billion in 1999 and $2.4 billion in 1998.
<PAGE>
JACKSON NATIONAL LIFE INSURANCE COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1999
- --------------------------------------------------------------------------------
8. REINSURANCE
The Company assumes and cedes reinsurance from and to other insurance
companies in order to limit losses from large exposures; however, if the
reinsurer is unable to meet its obligations, the originating issuer of the
coverage retains the liability. The maximum amount of life insurance risk
retained by the Company on any one life is generally $1.5 million. Amounts
not retained are ceded to other companies on a yearly renewable-term or a
coinsurance basis.
The effect of reinsurance on premiums is as follows (in thousands):
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
1999 1998 1997
------------------ ------------------ -----------------
<S> <C> <C> <C>
Direct premiums ............................ $ 361,367 $ 356,368 $ 352,256
Assumed premiums ........................... 4,941 5,162 5,354
Less reinsurance ceded ..................... (107,997) (97,844) (81,759)
================== ================== =================
Total net premiums ....................... $ 258,311 $ 263,686 $ 275,851
================== ================== =================
</TABLE>
Components of the reinsurance recoverable asset are as follows (in
thousands):
<TABLE>
<CAPTION>
DECEMBER 31,
1999 1998
------------------ -----------------
<S> <C> <C>
Ceded reserves ............................. $ 289,034 $ 237,971
Ceded claims liability ..................... 15,939 9,132
Ceded - other .............................. 23,037 9,086
================== =================
Total .................................... $ 328,010 $ 256,189
================== =================
</TABLE>
Reserves reinsured through Brooke Life were $76.4 million and $79.1 million
at December 31, 1999 and 1998, respectively.
9. FEDERAL INCOME TAXES
The components of the provision for federal income taxes are as follows (in
thousands):
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
1999 1998 1997
--------------- ----------------- -------------
<S> <C> <C> <C>
Current tax expense ........................ $ 136,900 $ 196,900 $ 181,800
Deferred tax expense ....................... 104,600 42,100 34,500
--------------- ----------------- -------------
Provision for federal income taxes ......... $ 241,500 $ 239,000 $ 216,300
=============== ================= =============
</TABLE>
The federal income tax provisions differ from the amounts determined by
multiplying pretax income by the statutory federal income tax rate of 35%
for 1999, 1998 and 1997 as follows (in thousands):
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
1999 1998 1997
--------------- --------------- ---------------
<S> <C> <C> <C>
Income taxes at statutory rate ............. $ 241,462 $ 238,959 $ 216,263
Other ...................................... 38 41 37
--------------- -------------- ----------------
Provision for federal income taxes ......... $ 241,500 $ 239,000 $ 216,300
=============== =============== ===============
Effective tax rate ......................... 35.0% 35.0% 35.0%
=============== =============== ===============
</TABLE>
<PAGE>
JACKSON NATIONAL LIFE INSURANCE COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1999
- --------------------------------------------------------------------------------
9. FEDERAL INCOME TAXES (CONTINUED)
Federal income taxes paid were $147.4 million, $161.9 million and $178.9
million, in 1999, 1998 and 1997, respectively.
The tax effects of significant temporary differences that give rise to
deferred tax assets and liabilities are as follows (in thousands):
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
1999 1998
------------------ ------------------
<S> <C> <C>
GROSS DEFERRED TAX ASSET
Policy reserves and other insurance items .................... $ 617,829 $ 611,094
Difference between financial reporting and the tax basis of:
Investment assets acquired .............................. - 14,035
Insolvency fund assessments ............................. 28,553 28,553
Other, net .............................................. - 10,288
Net unrealized losses on available for sale securities ....... 362,836 -
------------------ ------------------
Total deferred tax asset ..................................... 1,009,218 663,970
------------------ ------------------
GROSS DEFERRED TAX LIABILITY
Deferred acquisition costs ................................... (569,295) (334,851)
Difference between financial reporting and the tax basis of:
Value of the insurance in-force ........................... (48,557) (54,041)
Investment assets acquired ................................ (40,499) -
Other assets .............................................. (37) (1,696)
Net unrealized gains on available for sale securities ........ - (261,013)
Other, net ................................................... (52,615) (35,491)
------------------ ------------------
Total deferred tax liability ................................. (711,003) (687,092)
------------------ ------------------
Net deferred tax asset (liability) ........................... $ 298,215 $ (23,122)
================== ==================
</TABLE>
Management believes that it is more likely than not that the results of
future operations will generate sufficient taxable income to realize the
deferred tax asset.
10. COMMITMENTS AND CONTINGENCIES
The Company has contracted for the construction of a new home office
building. The total cost upon completion in 2000 is expected to approximate
$60.0 million, of which $30.5 million was capitalized at December 31, 1999.
The Company and its subsidiaries are involved in litigation arising in the
ordinary course of business. It is the opinion of management that the
ultimate disposition of such litigation will not have a material adverse
affect on the Company's financial condition or results of operations. JNL
has been named in civil litigation proceedings which appear to be
substantially similar to other class action litigation brought against many
life insurers alleging misconduct in the sale of insurance products. At
this time, it is not possible to make a meaningful estimate of the amount
or range of loss, if any, that could result from an unfavorable outcome in
such actions. In addition, JNL is a defendant in several individual actions
that involve similar issues, including an August 1999 verdict against JNL
for $32.5 million in punitive damages. JNL has appealed the verdict on the
basis that it is not supported by the facts or the law, and a ruling
reversing the judgement is expected.
<PAGE>
JACKSON NATIONAL LIFE INSURANCE COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1999
- --------------------------------------------------------------------------------
10. COMMITMENTS AND CONTINGENCIES (CONTINUED)
State guaranty funds provide payments for policyholders of insolvent life
insurance companies. These guaranty funds are financed by assessments to
solvent insurance companies based on location, volume, and types of
business. The Company estimated its reserve for future state guaranty fund
assessments based on data received from the National Organization of Life
and Health Insurance Guaranty Associations. Based on data received at the
end of 1999, the Company's reserve for future state guaranty fund
assessments was $80.2 million. The Company believes the reserve is adequate
for all anticipated payments for known insolvencies.
The Company offers synthetic GIC contracts to group customers including
pension funds and other institutional organizations. The synthetic GIC
contract is an off-balance sheet, fee based product where the customer
retains ownership of the assets related to these contracts and JNL
guarantees the customer's obligation to meet withdrawal requirements. The
value of off-balance sheet guarantees was $46 million and $892 million at
December 31, 1999 and 1998, respectively.
11. STOCKHOLDER'S EQUITY
Under Michigan Insurance Law, dividends on capital stock can only be
distributed out of earned surplus, unless the Commissioner approves the
dividend prior to payment. Furthermore, without the prior approval of the
Commissioner, dividends cannot be distributed which exceed the greater of
statutory net gain from operations or 10% of the Company's statutory
surplus for the prior year. On January 1, 2000 the maximum amount of
dividends that can be paid by the Company without prior approval of the
Commissioner under this limitation approximated $334.7 million.
The Company received capital contributions from its parent of $528.0
million and $184.0 million in 1998 and 1997, respectively. Dividend
payments were $96.3 million, $589.6 million and $244.5 million in 1999,
1998 and 1997, respectively, and received the required approval from the
Michigan Insurance Bureau prior to payment.
Statutory capital and surplus of the Company was $2,260.8 million and
$2,127.4 million at December 31, 1999 and 1998, respectively. Statutory net
income of the Company was $355.4 million, $321.8 million, and $237.
4 million in 1999, 1998 and 1997, respectively.
12. RELATED PARTY TRANSACTIONS
The Company's investment portfolio is managed by PPM America, Inc. ("PPM"),
a registered investment advisor and ultimately a wholly owned subsidiary of
Prudential. The Company paid $26.0 million, $28.9 million and $20.1 million
to PPM for investment advisory services during 1999, 1998 and 1997,
respectively.
13. BENEFIT PLANS
The Company has a defined contribution retirement plan covering
substantially all employees. To be eligible, an employee must have attained
the age of 21 and completed at least 1,000 hours of service in a 12-month
period. The Company's annual contributions, as declared by the board of
directors, are based on a percentage of eligible compensation paid to
participating employees during the year. The Company's expense related to
this plan was $2.9 million, $3.8 million and $4.3 million in 1999, 1998 and
1997, respectively.
14. SUBSEQUENT EVENT
During January, 2000, the Company declared a $75 million dividend payable
to Brooke Life.
